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Published on July 25, 2007

The broker is positive about the operating-growth prospects of Thailand's largest state-owned bank, because it should benefit from lower funding costs than its peers, while better use of its wide branch network and large customer base can provide more upside. In addition, faster disbursement of the government's budget will mean larger inflows of cheap funding for the bank.

Krung Thai Bank's second-quarter net profit came in below the broker's estimate, because of higher provisioning costs. The bank claims its provisions can now fully meet International Accounting Standard 39 compliance requirements through the end of the year.

The bank's net interest margin fell 10 basis points quarter on quarter, because Krung Thai Bank booked higher dividend income in the first quarter.

Despite lower fee income quarter on quarter, preprovision operating profit rose 19 per cent on quarter, aided by lower personnel expenses after bonus payments in the first quarter.

Non-performing loans (NPLs) rose Bt6.9 billion quarter on quarter, mostly from the private sector. Krung Thai Bank's large provision slightly improved its loan-loss reserve to NPL ratio quarter on quarter to 9.1 per cent, but this was still below the industry average of about 60 per cent.

The brokerage has maintained its full-year provisioning estimate of Bt10 billion, even though there is a downside risk to this number. The broker also expects Krung Thai Bank to achieve this year's net-profit forecast of Bt12.7 billion.

Possible downside risks include higher provisioning costs, given its relatively low NPL coverage, and a higher slippage rate for loans that were refinanced.