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JPMorgan sees 2 per cent drop in Thai banks' profits

JPMorgan expects a 2-per-cent drop in combined profit of Thailand's nine commercial banks for the first quarter, and Thai brokerage houses project a drop of more than 5 per cent, mainly on a decline in lending. However, the Bank of Thailand insists the banking sector's financial strength is secure.

According to JPMorgan's report, the nine banks are expected to see a year-on-year reduction in profits to Bt50 billion for the first quarter. Their profit is expected to rise 5 per cent, however, from the final quarter of last year. Return on equities for the banking sector is estimated at 16 per cent.

Higher financing costs are seen in Thai banks with a decline in the assets of small and medium-sized enterprises and retail businesses, the JPMorgan report said, preferring Kasikornbank and Siam Commercial Bank as the most attractive banking stocks for investment, given lower administrative costs and higher profitability. Bangkok Bank remains a safe haven with low risk.

A KGI Securities analyst in Thailand expects the combined profits of the nine commercial banks to drop 5.4 per cent year on year to Bt48.1 billion for the first quarter on slow lending growth in light of the economic slowdown and the prolonged political situation.

However, these banks are anticipated to record a combined profit increase of 1.7 per cent quarter on quarter.

Phillip Securities (Thailand) also projects a 5.5-per-cent reduction in commercial banks' first-quarter profit year on year to Bt48 billion due to a likely decrease in non-interest income, but a 2-per-cent rise quarter on quarter.

First-quarter credit growth is forecast at 8.8 per cent year on year and 0.5 per cent quarter on quarter, the KGI Securities analyst said. Net interest margin is expected to average 1 basis point year on year but minus 14.2 basis points quarter on quarter. Non-net interest income is expected to contract 3.1 per cent year on year and shrink 6.2 per cent quarter on quarter. Banks set aside more funds for loan-loss provisions, with a 25.1 per cent rise year on year.

KBank remains the only stock pick, with first-quarter estimated profit increases of 11.3 per cent year on year and 18 per cent quarter on quarter on extracurricular items in non-net interest income.

Phillip Securities (Thailand) believes KBank will be the only one to post a year-on-year profit rise for the first three months of 2014. Its profit is expected at Bt10 billion with loan growth of 1.8 per cent. SCB is expected to see the highest profit of Bt13 billion.

Given Thailand's economic slowdown and prolonged political unrest, Phillip has lowered its estimate of the banking sector's loan growth to 6 per cent this year from the previous estimate of 9 per cent. The banking sector's net-profit forecast is cut by 2 per cent to Bt208 billion from Bt213 billion for 2014.

Phillip Securities prefers Bangkok Bank because of its expertise in large-enterprise loans, seen as the main lending type that could boost the banking sector's credit, and its highest loan-loss provision among others in the sector.

Roong Mallikamas, BOT spokeswoman, said the commercial banks could deal with the economic slowdown leading to credit-quality problems, as their average loan-loss provision is high at 168 per cent.

"We are confident that the commercial banking system will not cause a shock to the economy," she said.


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