CGSI expects 7 banks to achieve profits of 49.8 billion baht in the first quarter.

HoonSmart.com >> CGS Securities International (Thailand) expects 7 banks in the first quarter of this year to achieve a total net profit of 49.8 billion baht, a decrease of 1% from the same period last year and an increase of 17% from the fourth quarter of 2023. With the increase of seasonal expenses and the growth of net interest margin, KBANK-KTB is fundamentally reducing reserves. We recommend adding weight to the banking group, and promoting BBL-SCB as the best choice.

The analysis department at CGS International Securities (Thailand) or CGSI issued an analysis forecasting that the seven commercial banks surveyed will achieve a total net profit of 49.8 billion baht (-1% y/y, +17% q/q) in Q1/2567.

The reason why profits are lower year-on-year is that the loan loss reserve ratio is higher than the same period last year. But this will be partially offset by higher interest rate margin (NIM), while earnings will grow on a quarterly basis due to seasonally increased operating expenses in Q4, which will lead to a lower expense-to-income ratio from 49% in Q4'23. To 45.7% in the first quarter of 2024.

In addition, the non-performing loan ratio in the banking sector is expected to be around 3.61%, up from 3.59% in the fourth quarter of 2023, but still lower than 3.68% in the first quarter of 2023, which is the highest recorded in the past three years. At 4.2% in this quarter. /64 (from the COVID-19 outbreak)

Analysis Department The banking group's total loans are expected to grow by 0.5% year-on-year but will decrease by 0.1% quarter-on-quarter. They are likely to continue approving loans to SME clients on a selective basis because companies are likely to bear Small and medium production costs are higher. But sales recovery remains uncertain.

In this first quarter it was also found that banks were more cautious in granting new loans to retail customers during periods of high interest rates. Demand for business loans is likely to continue to increase. Meanwhile, net interest margin is expected to rise 0.40% year over year, but will decline 0.03% from the previous quarter to 3.63% in the first quarter. Because the rate of return on loans (after the interest rate reaches its highest point of 2.5% in November 2023) interest costs will change less. Which is adjusted according to the fixed deposit interest rate

Analysis Department The bank is expected to have a loan loss reserve ratio of 1.56% in the first quarter of 2024 (+8 bps y/y, -23 bps q/q). It is believed that the loan loss reserve ratio on a lower basis Quarterly mainly came from KBANK and KTB, with both banks recording loan loss provisions rising to 200-220 basis points in Q4 2023 due to stringent balance sheet cleaning.

However, the bank's total loan loss provision ratio is expected to be 160 basis points, indicating that the bank is cautious about asset quality. Although the NPL provisioning ratio was 190% in the first quarter. KTB and KBANK's Q4 2023 loan loss provision rates reflect concerns about a large corporate client and related company, and the banks are monitoring a potential deterioration in credit quality.

It is also recommended to increase the investment weight (Overweight) in the banking sector because it believes that it will benefit from the recovery of the national economy. (from tourism and domestic consumption) and improving asset quality in 2024, continuing to select BBL and SCB as top stock picks because they have attractive valuations and net earnings tend to grow steadily. Positive factors that will help the stock price rise are: The debtor's ability to repay debts has increased as a result of the strong expansion in GDP and benefiting from higher interest rates. But the banking sector will face downside risks if asset quality declines and stricter regulatory measures are announced. This may prompt commercial banks to tighten lending standards, leading to a slowdown in loan growth.