Thai banks set to report dismal earnings with more bad news going forward

The economic malaise plaguing Thailand is set to have a direct impact on the earnings of the corporate sector which is likely to have a domino impact on the balance sheet of the financial sector.

Thailand’s financial sector is set to announce its earnings within the next 10 days (by October 15) and the market is not too optimistic that there are going to be any positive surprises in store for the market nor the economy.

Thailand’s economy, which has been reliant on exports for about 60 per cent of the gross domestic product (GDP) and tourism about 15 per cent of the GDP, has both seen a sharp deterioration ever since the coronavirus outbreak which had pushed countries into lockdown their since March of this year.

Analysts expect the sector to report dismal profits although the numbers are likely to be slightly better than those seen during the second quarter of the year when the financial sector was hit by major lockdowns and slower economic activities.

“For the seven banks under our coverage, we estimate the third-quarter net profit at 31.2 billion baht (-38.6 per cent year-on-year, +10.6 per cent quarter-on-quarter), driven by fall in credit cost (KBANK and BBL in particular),” Tanawat Ruenbanterng, a banking analyst at TISCO Securities, said in a recent note to clients.

“We expect the topline to remain overall weak, but with some signs of recovery, especially in loan growth and fee income, as economic activity continued to normalize during the quarter,” said Tanawat.

Likewise, analysts at MayBank Kim Eng Securities also expect seven banks under their coverage to report combined earnings in the third quarter a total of 22.2 billion baht, down 52 per cent year-on-year and 4 per cent quarter-on-quarter.

Jesada Techahusdin, MayBank Kim Eng banking analyst, said that loans have likely stayed relatively flat compared to last year due to weak loan demand and lower debt repayments. The loan amount grew only 0.2 per cent QTD in August.                                

The weak revenue outlook and high uncertainty on asset quality will pressure banks’ earnings in the next 3 years, Jesada added.

There is still no near-term catalyst if the recovery of tourism remains slow. Recently, the Bank of Thailand (BOT) forecasts only 6.7 million and 9.0 million tourists for this year and next year — versus 39.8 million in 2019.

The Top Pick

MayBank Kim Eng selected TISCO as a ‘safe’ pick due to high earnings visibility from its strong capital level and NPL coverage.

Analysts at Bualuang Securities also rated ‘Buy’ on TISCO as it is expected to report 40 per cent decline in earnings in the third quarter and will see a gradual recovery in the fourth quarter onwards. Bualaung cited that TISCO’s asset quality is improving with the lockdown lifting.

TISCO shares trade at 62.75 baht per share in afternoon break on Monday, the same as its previous closing price, with a transaction value of 295 million baht.

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