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Bangkok Bank

Most defensive bank BUY

Bangkok Bank Plc (BBL)

1Q14 preview — in a stall. We expect BBL's 1Q14 profit at Bt8.6bn (Bt4.49/share), a

slip of 5% YoY - on the absence of a one-off gain - and a rise of 12% QoQ. BBL guides to

QoQ zero loan and deposit growth, QoQ sustainable net interest margin (NIM), flattish

fee income both YoY and QoQ, QoQ seasonal easing in cost to income ratio to 42%,

Bt2-2.1bn provisions (in line with full-year target of Bt8-8.5bn) and a slight increase in

NPLs from qualitative reclassification.

Positive surprise in 1Q14 NIM guidance. BBL's statement that it expects NIM to be

stable QoQ is a positive surprise for us. With the highest exposure to money-market

rates, BBL is typically hit the most by interest rate cuts. However, BBL appears to be

more vigilant in managing NIM than expected. BBL claims it was able to negotiate with

some clients to change interest charge terms so that these loans are not affected by

interest rate cuts. This is the key factor behind the stable 1Q14 NIM.

BBL keeps 2014 targets unchanged even though most other banks have cut targets

because of the prolonged political uncertainties. It still expects for 2014: 5-7% loan

growth (vs. 9percent for 2013); 10percent fee income growth (vs. 11percent for 2013); slight squeeze in

NIM; stable provisions at Bt8-8.5bn with credit cost of 45-50 bps; a rise in cost to

income ratio to normal at 41-43% on the absence of 2013's one-off Bt2.6bn reversal of

provisions for loss sharing with the TAMC. The reason it can stand firm on its 2014

targets is that it has a focus on corporate loans, for which loan growth and asset

quality are least impacted by the economic downturn. Meanwhile, it has low exposure

to small SME and retail loans, those likely to be hit the most by the economic

downturn.

Maintain as top Buy: We keep BBL as our top buy, seeing it as the most defensive

bank in an economic downturn in two respects. 1) By all parameters - 214% LLR

coverage, 16.9% capital adequacy ratio and the highest liquidity at one-third of total

assets, BBL has the strongest balance sheet, giving it the softest cushion to weather

the economic downturn brought by the political turmoil. Representing a flight to

quality, BBL shares have historically initially outperformed during economic downturns.

2) BBL has the highest exposure to corporate loans, which are positioned to be least

damaged by the economic downturn in terms of both growth and asset quality.




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