Bangkok Bank, Kasikornbank, Siam Commercial Bank and Krung Thai Bank are expected to be hit harder than smaller banks following the cut in bank fees, according to Citi Investment Research & Analysis, a division of Citigroup Global Markets.
The impact is due to their high transactional fees, their large provincial network compared with mid- or small banks and thus, greater exposure to the 'inter-region transfer fee'.
Its sensitivity analysis suggests that a 1-per-cent decrease in fee income will hit earnings by 0.7 per cent.
While the entire banking sector could see revenue shaved off by Bt682 million, KBank would be the single biggest loser as its lost revenue amounts to Bt158 million. Bangkok Bank follows close behind with Bt156 million in lost revenue and Bt154 million for SCB.
On Thursday, following heavy pressure from the Bank of Thailand, commercial banks agreed to impose a single rate of Bt12 for money transfers up to Bt2 million from December 15 onwards. The central bank said that this cut would reduce the banking system's revenue by |only Bt100 million. At present, banks charge three rates for transfers: Bt12 for transfers up to Bt100,000, Bt40 for transfers of more than Bt100,000 up to Bt500,000, and Bt100 for transfers of more than Bt500,000 up to Bt2 million. Negotiations on fee reduction for other services will be discussed later, including ATM-related fees and BOT's compensation, Chim said.
The inter-region transfer fee is considered the least defensible item. Citi said in its research that if that particular fee was cut by half, earnings could decline by 5 per cent and reduce structural return on equity by 0.5 per cent.
On Friday, despite the fee cut, all banks saw an increase in share prices, except ICBC Bank (Thai) and Krung Thai Bank.
In its research, DBS Vickers Securities (Thailand) did not mention the financial impact of the fee cut. On the contrary, it saw another round of upgrades. The house expects strong loan and earnings growth in 2011.
"Following the forecast for higher Thai economic growth of 4 per cent in 2011, we are raising the 2011 loan growth forecast to 7.5 per cent (from 6.2 per cent), led by strong loan demand for fixed investment and working capital from corporate and SMEs. We are projecting growth of 7.4 per cent in 2012.We also expect Thai banks will post impressive earnings growth of 15 per cent in 2011, taking into account the 7.5-per-cent loan growth assumption, the 6 basis points expansion in net interest margin, 11-per-cent increase in fee income, and lower credit cost of 72 basis points of total loans," it said.
Highlighting KBank, BBL and KTB as its top picks, DBS noted that Thai banks are trading at 1.5 times their 2011 price per book value, lower than their regional peers' average of 1.9 times. Banks in Hong Kong are trading at 2.2 times, China 1.9 times, Indonesia 2.8 times, Malaysia 2.2 times, and Singapore 1.4 times.
"We believe Thai banks' valuations will eventually catch up, underpinned by strong growth in FY10-11F, supported by stronger loan growth and improving NIM and asset quality."
It favoured large banks with strong balance sheets that will benefit from an interest rate hike. It highlights KBank for strong asset quality, lowest non-performing loan ratio, and highest fee-income growth among peers; BBL for its strong balance sheet, and highest NPL coverage ratio; and KTB as a beneficiary from the Thai Khemkhaeng package and higher government expenditure. It also believes that KBank and BBL will benefit from stronger loan demand by corporates and SMEs in 2010 due to economic growth.