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Banking Sector

5M14 loan very slim. Hope dwells in 2H14 Rec : NEUTRAL

Banking sector

There is nothing much to hope for from 1H14 loan growth which has

decelerated as a result of decreasing loan demands during the

economic downtrend and the banks' strict loan policy. Benefits from

stimulus packages will become apparent in 2H14.

- Weak loan growth in 5M14

Ten commercial banks under our coverage reported May Summary

Statement of Assets and Liabilities with outstanding net loan (after

allowance for doubtful accounts) of B9.0tr, up only 0.38percent from last month

(mom) yet growing 7.71%yoy. Overall, 5M14 net loan increased only

0.96percent from end-2013, quite low when compared with FY2014 net loan

growth forecast of 6.26%yoy. The decline in May loan stemmed from

decreasing demands for retail loans after the school semester has started as

well as lower investments, both private and government, and domestic

consumption as a result of the protracted political conflicts. Monthly net loan

of small banks like KKP, TISCO, and TCAP, as well as BAY, which focus

mainly on retail loans, has decreased, whereas TMB and KBANK posted the

highest loan growth in the month, thanks to corporate and medium-sized

SME loans. Speaking of deposits (including loans for small banks),

outstanding deposit in May was B9.76tr, contracting 0.55% mom but rising

5.29%yoy, led by TCAP because of an increase in negotiable certificate of

deposit (NCD).

- Better business outlook in 2H14

We do not expect for the growth in 1H14 but foresee a better business

outlook in 2H14 throughout 2015, which would help boost 2014-2015 net

loan growth above our target of 6.26%yoy and 7.45%yoy, respectively, and

2014-2015 net profit growth above our conservative estimate of 2.4%yoy

and 8.9%yoy, respectively.

- Top picks are KBANK, SCB, KKP

We assign NEUTRAL for the sector. Top picks are SCB, KBANK, and KKP

which focus mainly on SME and retail loans and would benefit from the

recovering economy.


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