Analysts upbeat on Q3 bank earnings outlook
Bank earnings are expected to jump in the third quarter this year as loans and fee income recover and the need for nonperforming loans (NPL) capital buffers decreases, say analysts.
Overall earnings growth for the banking sector in the third quarter is expected to improve as NPLs have stabilised and banks are no longer required to increase capital reserves for delinquent corporate loans, said Asia Plus Securities (ASP) executive vice-president Usanee Liurut.
ASP expects the sector to generate 54% of its yearly earnings in the second half of the year. As of June, banks posted net profit of 97.2 billion baht, down 0.7% year-on-year. First-half net profit accounted for 47% of the projected total net profit in 2017.
Ms Usanee said net profit of the banking sector will continue growing at least 11% per year until 2019, mainly driven by loan growth generated by government projects and increases in financial advisory and loan fee income.
Profit will grow even as banks increase their IT-related expenses to develop digital projects. Among the stocks to watch in the sector are Siam Commercial Bank (SCB), Kasikornbank (KBank) and Thanachart Capital (TCAP), said ASP.
Yuanta Securities (Thailand) analyst Chattra Chaipunviriyaporn said bank earnings in the third quarter will increase 18% from the previous quarter as provision reserves decline.
Energy Earth’s NPLs drove Krungthai Bank’s (KTB) and KBank’s net profit down in the second quarter. But this quarter, the net profits of KTB and KBank are expected to grow 16.4% quarter-on-quarter and 9% year-on-year, respectively.
Big banks like KBank and Bangkok Bank still continue to set provision reserves, but the profits of mid-sized banks like TMB Bank will grow 24% from the same period last year as net interest income from FWD Life Insurance Plc is projected to generate 1.3 billion baht.
Mr Chattra said banks’ operations also improved in the third quarter. At the top of the pack is SCB, which has the best asset quality in the sector, he said. TMB will realise access fee profits of about 1.3 billion baht from FWD Life Insurance annually for the next 15 years.
The industry NPL ratio will increase from 3.9% to 4% in the third quarter.
Small banks like Tisco and Thanachart Bank already weathered the worst of the NPL storm, he said. The exception is Kiatnakin Phatra, for which small and mediumsized enterprise loans and used car loan NPLs keep increasing.
Banks earnings in the third quarter will represent substantial year-on-year and quarter-on-quarter growth. Among its peers, Tisco has the largest potential for growth, said Mr Chattra.
Phillip Securities (Thailand) expects earnings performance for banks in the third quarter to jump 3.6% year-on-year and 17.9% quarter-on-quarter as NPL ratios and provision reserves decline.
KTB will reset its provision reserves for NPLs to normal levels and will record higher net profit, as it did not set aside any NPL reserves to cover Energy Earth’s 12-billion-baht loan, projected Phillip.
“Phillip expects all banks to undergo loan growth, with the exception of KTB, which saw some corporate loans withdrawn. The NPL ratios of mid-sized and small banks decreased sharply,” said Phillip.