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Published on April 9, 2008

The first-quarter net profits of Thailand's seven largest banks are expected to surge 12.8 per cent year on year and turn around from a loss of Bt8.5 billion in last year's final quarter to a profit of Bt20.6 billion.

These are the findings of a research paper released yesterday by KGI Securities (Thailand).

Kasikornbank (KBank) and Bank of Ayudhya (BAY) are the top picks of at least 10 brokers in a Securities Analysts Association consensus.

Among them, Trinity Securities has set the highest target price of Bt115 for KBank, while Phillip Securities (Thailand) has set the highest price of Bt34.50 for BAY.

KGI Securities (Thailand) said the better year-on-year earnings forecasts were based on strong net interest margins following the expiry of some high-cost deposits; higher-than-expected loan growth driven by recovery in corporate demand, particularly for short-term or working-capital loans; and improving fee-income growth

from increased transaction fees, particularly bancassurance fees.

The quarter-on-quarter improvement will be due mainly to declining provisions and operating expenses, the broker said.

The seven commercial banks under KGI Securities' coverage are Bangkok Bank (BBL), Krung Thai Bank (KTB), Siam Commercial Bank (SCB), KBank, TMB Bank, BAY and Siam City Bank (SCIB).

SCIB is expected to be the best year-on-year performer among its industry peers with a whopping rise of 407 per cent, from a net profit of Bt205 million in last year's first quarter to Bt1.04 billion in this year's.

KGI Securities believes TMB Bank will be the second-best performer. The fifth-largest bank by assets is expected to post a net profit of Bt977 million, up 344 per cent year on year from Bt220 million.

SCB is expected to deliver a 39.5-per-cent year-on-year rise in net profit from its first quarter, reaching Bt5.16 billion.

State-owned KTB is expected to be the worst performer. The broker predicts the bank's first-quarter net profit will slump 31.79 per cent to Bt3.09 billion, from Bt4.53 billion in the same period last year.

Regarding expected quarter-on-quarter results, KGI Securities believes KTB will show the highest growth at 620 per cent to Bt3.09 billion, from Bt429 million in the previous quarter.

BBL is expected to be second best, delivering 29.83 per cent growth to Bt5.31 billion, from Bt4.09 billion in the previous quarter.

"We expect the net interest margin of banks in our coverage to be about 3.6 per cent in the first quarter of 2008, up 34.5 basis points year on year and 8.1 basis points quarter on quarter. The year-on-year increase will come from declining funding costs after the repricing lag from last year's interest rate cuts, the expiry of some high-cost deposits and improved asset quality," the broker said.

Due to the completion of provisions for International Accounting Standard 39 (IAS 39) last year, the broker expects provisions for banks in its coverage to decline to Bt8.4 billion, down from Bt28.3 billion in the previous quarter.

The three banks with the highest increase in provisions year on year are expected to be KBank, BAY and KTB.

SCB Securities believes 10 banks under its coverage will report a 2-per-cent year-on-year drop but a 211-per-cent month-on-month rise in first-quarter earnings.

The 10 include the seven under KGI Securities' coverage - with the exception of SCB - plus BankThai, Thanachart Capital, Tisco Bank and Kiatnakin Bank.

It expects SCIB to show the largest year-on-year growth in first-quarter net profit, with the figure surging 573 per cent to Bt1.38 billion, from Bt205 million in the same period last year.

On the other end of the scale, SCB Securities predicts BankThai will be the worst performer among its peers. The broker projects that BankThai will record a net loss of Bt998 million in this year's first quarter, compared with a net profit of Bt559 million in the same period last year, a drop of 279 per cent.

"We expect banks overall to report a good first quarter 2008, with positive developments in loan growth, net interest margins and fee income and stable asset quality," the broker said.

It expects no more extra provisions but more stringent normalised provisioning in this year's first quarter. Non-performing loans should remain little changed or, at worst, rise minimally.

Most banks saw a continued quarter-on-quarter increase in fee income, translating to strong 18-20-per-cent year-on-year growth. This was driven by lending-related fees, transaction fees and resolution activities, the broker said.

SCB Securities named BAY and KBank its top picks.

Asia Plus Securities predicts eight banks under its coverage would show a cumulative net profit of Bt18.7 billion from this year's first quarter, thanks mainly to a substantial decline in provision reserves.

The eight banks in its coverage are the seven largest banks plus BankThai.

KBank and BAY are among the broker's top picks, given that they still have upside gain, they have high capital-adequacy ratios, their businesses have growth potential and they have already set aside high provision reserves.

The broker recommends "buy on weakness" for SCB, KTB and SCIB shares and "sell" for BankThai and TMB Bank shares.

Siriporn Chanjindamanee,

Oranan Paweewun

The Nation