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Financial institutions are set to benefit from the recent rate cut that the Bank of Thailand (BoT) undertook with a surprise decision to cut the policy rates by 25 basis points to 2.25%.
“The impact on our 2024 aggregate Bank coverage net profit forecast (we had earlier assumed no Repo Rate cut till the Dec 18 MPC) is just 0.6% (net lending & deposits and net interbank). The history of Repo Rate-cutting phases in 2007, 2011, and 2019 shows that the SETBANK Index tends to outperform the SET one month after the first cut (and two and six months after the first cut),” Anakepong Putthapibal, analyst at Bualuang Securities said in a note to clients.
He added that Bualuang study found that as of end-Jun 2024, 72% of the aggregate loans of the brokerage’s bank coverage could be repriced within 6 months, which translates as loans at floating interest rates. Also, 79% of the aggregate deposits of its bank’s coverage at end-Jun could be repriced within six months.
Bualuang says that looking back in history it shows that after the BoT starts cutting the Repo Rate, the SETBANK Index starts outperforming the SET. The broker expects a new capital expenditure cycle to gradually boost the lending and asset the quality of our coverage. In Bank space, Bualuang says it likes Bangkok Bank Plc (BBL), Kasikorn Bank Plc (KBANK) and Krung Thai Bank Plc (KTB).
Kiatnakin Phatra Securities came out to say that historically, property and consumer finance have performed strongly following the start of a rates cycle, while Commerce (i.e. retail trade) is also strong. Banks, Telcos and Energy tend to lag, though on the upside.
Among the Buys in Phatra top ideas list is a property name—SPALI—and three stocks with above-average leverage— CPALL, MINT and CPF. Although it is not a Top Idea, 85% of CRC’s debt is floating and we rate it Buy. The indirect exposure to property of HMPRO—which we also rate Buy—could support it as well.
Anakepong of Bualuang says that his view is that he also expects both private and public investment to rise through 2025. New public infrastructure projects worth 481 billion Baht are expected to open to tender, 4Q24-2025. Furthermore, foreign direct investment (FDI) inflows will rise in 2025, Bualuang anticipates, as US-China trade conflict will prompt more brands and manufacturers to relocate production from China to Thailand and macro-economic recovery will precipitate much heavier private investment. These factors will support lending and earnings.
No More Cuts
Although expectations are that more rate cuts should be undertaken, most economists are of the view that this may be the final cut in a short while.
Charnon Boonnuch, chief economist for Thailand at Nomura (Sinapore) said in a note to clients nonetheless, the BoT’s tone was hawkish, as it indicated this is “not a start of the easing cycle” and the statement also removed the usual guidance that the door will be open to policy rate adjustment if warranted.
“We therefore still forecast the BoT will stay on-hold at 2.25% in 2024-25, which it says is a level that will not impede its goal of promoting deleveraging,” he said.
His comments were echoed by Pipat Luengnaruemitchai, economist at Phatra Securities, who also does not expect rate cuts at least not during the course of this year.
On Wednesday the Thai Monetary Policy Committee (MPC) voted 5 to 2 to cut the policy rate by 0.25 percentage point to 2.25%, against the market and our expectation of a pause. The main reason for the rate cut is to help relieve debt burden without hindering the debt deleveraging progress given the currently slowing credit growth. The Committee views that despite the cut, the monetary stance remains neutral, which is deemed to be appropriate with the growth potential. The statement doesn’t hint at a further rate cut given that the Committee emphasizes the “neutral” stance of monetary policy.
“Despite the surprise cut from the BoT, the statement does not appear particularly dovish, as the MPC maintains its growth outlook and continues to forecast that inflation will return to the target in the Q4,” Pipat said.
“During the press statement, the rate cut is emphasized to be a recalibration, rather than the start of an easing cycle or a response to concerns over negative growth or inflation prospects. It seems that this cut was meant to relieve the pressure on the BoT and should be a one-and-done cut. However, we maintain the terminal rate forecast at 1.75% but push the timing of the cuts to the second half of 2025 due to slowing economic momentum and credit deterioration,” he said.
Pipat of Phatra said that the short-term concerns remain largely unchanged. The MPC acknowledged that financial conditions have become somewhat more tightened and expressed concerns over loan quality and slowing loan growth which could in turn affect economic activities. The debt deleveraging which used to be the reason for the rate hold is now less concerning as credit growth continues to slow due to heightened credit risks. However, the MPC is cautious not to send a dovish signal, stating that the policy rate should be neutral and not too low and that it may lead to financial imbalances in the long term.
Pipat’s comments were also echoed by Enrico Tanuwidjaja, economist at UOB based in Singapore, who says that based on Wednesday’s policy decision, as financial stability remains its policy priority. He says that he expects the BoT to keep the policy rate unchanged at 2.25% during its final meeting of 2024 on December 18 meeting.
“We anticipate another 25-bps (0.25%) rate cut in the first quarter of 2025, with the policy rate remaining at 2.0% throughout the rest of the year,” he said.
During the press conference following the meeting, Sakkapop Panyanukul, Secretary of the MPC, revealed that the rate cut did not mark the start of an easing cycle. Instead, it was a policy recalibration. This is reflected by the policy guidance stating that “…the Committee deems that the policy rate should remain neutral and consistent with economic potential. Moreover, it should not be at too low a level that would create build-ups of financial imbalances in the long term.”
