Thai banks receive strong loan demand public, private sectors

BANGKOK: Despite weak quarterly earnings after floods last year, Thai banks should deliver higher profits in 2012 because of strong demand for loans from companies and the public sector, although rising costs may put pressure on margins, analysts said.

On Monday, Kasikornbank Pcl, Thailand's third-largest lender, reported a 43 percent fall in quarterly net profit, which was in line with the sector.

Last week, other big banks reported weaker-than-expected earnings in the fourth quarter because they booked higher provisions as a precautionary measure and net interest margins dropped due to lower fee income and flood-related costs.

"We expect growth to continue this year. If banks can recover after the first quarter, it should be a good sign for earnings growth," said Sirinattha Techasiriwan, a banking analyst at Kasikorn Securities.

Even though major banks like Bangkok Bank and Krung Thai Bank booked higher-than-expected provisions in the last quarter of 2011, there was no immediate sign of an increase in non-performing loans, he said.

Bank of Ayudhya, part-owned by General Electric and TMB Bank, owned 30 percent by Dutch ING were the only two to report better-than-expected earnings in terms of operating profits, Sirinattha added.

CIMB Securities said in a note that the outlook for Bank of Ayudhya was promising this year as the bank would "become an increasingly more convincing domestic consumption play".

Demand for rebuilding and repairs after the floods plus government stimulus policies have prompted some analysts to raise their target for loan growth this year to more than 10 percent from single digits.

And over the longer term, momentum should be kept up as companies are likely to invest more to boost efficiency or expand production bases in Southeast Asian in preparation for a planned single market by 2015.

"With AEC forming by 2015, loan growth should remain good," Sirinattha said, referring to the ASEAN Economic Community.

But global economic uncertainty could slow down loan growth, and another negative risk is the government's plan to shift to the central bank the burden of 1.14 trillion baht in public debt incurred during the 1997 Asian financial crisis.

Local banks may have to pay higher fees on deposits to help fund the debt servicing. Although it is unclear how much banks will pay, analysts voiced concern this could put pressure on the sector's net interest margins, which fell in the fourth quarter.

"We are cautious about the impact ... The central bank may increase fees to commercial banks, which would lower earnings this year," Maybank Kim Eng Securities said in a note to institutional clients.

Maybank downgraded Siam Commercial Bank (SCB) to "hold", seeing limited prospects for further gains after the country's fourth-largest lender reported lower-than-expected profit.

In the past three months, SCB shares have risen 17 percent, outperforming a 10 percent gain in Bangkok Bank stock and a 7 percent rise in Kasikornbank.

At 0505 GMT, Kasikornbank and Krung Thai Bank shares were up more than 1 percent on the day, outperforming a 0.6 percent gain in the broad index. Bangkok Bank rose 0.65 percent, while SCB edged up 0.4 percent.

Copyright Reuters, 2012
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