Krung Thai Bank: Riding the potential upside
Related Stories
- Potential upside from Thai Airways’ debt-to-equity conversion
- 2H25F credit cost likely to be lower than 1H25
- Hope for higher shareholder returns
- Maintain BUY with TP of THB25.50
2025 financial targets maintained. With a more clarity in terms of US tariff issues and stronger-than-expected export growth in 1H25, KTB now estimates Thailand’s 2025 GDP growth at 2.0%. The bank expects 2H25F exports to slow down significantly, due to front-loading of exports in 1H25. It expects two more policy rate cuts for the remainder of 2025, given low inflation and economic slowdown anticipated in 2H25F.
Management has reaffirmed all its 2025 financial targets. While its loan portfolio contracted by 1% in 1H25, the bank maintains its target for flat loan growth for the year. The focus remains on quality customers and the retail segment. At this point, we believe flat loan growth is achievable.
While management is confident that its net interest margin (NIM) should be within guidance, it revealed that such guidance is calculated based on one more policy rate cut. This implies there is downside risk to its NIM target, given the bank’s projection of two more policy rate cuts in 2H25.
KTB targets to grow fee income from wealth management business and its new product initiatives, amid declining transactional fees from slow new lending/businesses. Our current forecast is in line with the bank.
KTB’s 2025 targets vs. DBSVTH’s FY25F assumptions
| KTB’s 2025 targets | DBSVTH’s FY25F |
Loan growth | Flat | 0.7% |
NIM | -30bps to -10bps | -37bps |
Fee income growth | Low-to-mid single digit | 2% |
Cost-to-income ratio | Low-to-mid 40s | 42% |
Credit cost (bps) | 105-125bps | 120bps |
Coverage ratio | 170% +/- | 182% |
NPL ratio | <3.25% | 3.2% |
Source of all data: Company, DBSVTH
On non-interest income (non-NII), KTB aims to increase income from bad debt recovery, while monitoring for potential NPA sales if market prices improve.
Potential upside from Thai Airways’ (THAI TB) debt-to-equity conversion. Given that KTB normally records its equity investments as available for sales, the bank must realise mark-to-market gains/losses from its equity investments at every quarter-end.
Following Thai Airways’ (THAI TB) debt-to-equity conversion, the bank received a total of c.1.3bn shares of THAI (i.e., c.5.73% of the total shares of THAI) at a price of c.THB2.55/share on 29 Nov 2024. Thai Airways has resumed trading on the Stock Exchange of Thailand (SET) on 4 Aug 2025, after exiting its business rehabilitation programme on 16 Jun 2025.
If THAI’s share price at end-3Q25 is higher than KTB’s conversion cost, KTB will book a mark-to-market gain on its investment in THAI (i.e., a gain on financial instrument designated at fair value through profit or loss [FVTPL]). This implies a sizable upside to KTB’s 3Q25F earnings.
Note that there is a one-year (from 4 Aug 2025) lock-up period (i.e., sell restriction) for creditors who received THAI shares from the debt-to-equity conversion.
2H25F credit cost likely be lower than 1H25. KTB front-loaded credit costs in 1H25 (130bps) to incorporate economic uncertainties mainly from US tariffs, while maintaining FY25F credit cost at 105-125bps. This implies a lower credit cost in 2H25F.
Thanks to its ongoing portfolio rebalancing, SME loan contribution declined to 10% of total loans. Meanwhile, with its prudent loan underwriting policies, new loans are of high quality. At this point, management is confident for the NPL ratio to stay within guidance of <3.25% in FY25F, while looking to maintain a high coverage ratio of over 170% at end-FY25F.
Note that KTB is considering upstaging the remaining THAI’s debts to performing loans, implying an upside to KTB’s asset quality outlook.
Hope for higher shareholder returns. With KTB’s high CET1 capital of 18.4% at end-2Q25, amid a slow growth environment, it is expected that the bank may consider enhancing shareholder returns via higher dividend payout or through a share buyback programme.
KTB raised its dividend payout to nearly 50% in FY24 and intends to at least maintain this payout in FY25F. With that, we expect KTB to pay dividend of THB1.55 per share, implying a dividend payout of 48.5% and a dividend yield of 6.6%. Note that KTB normally pays dividends once a year.
Meanwhile, at the bank’s latest AGM, management received shareholder approval to execute a share buyback programme of no more than 10% of its paid-up capital, meaning that it can initiate a programme without seeking another shareholder approval if it deems the timing is appropriate.
Maintain BUY with TP of THB25.50. Our TP is based on 0.77x FY25F P/BV, i.e., its long-term average P/BV. We believe KTB has potential to catch up with its peers in the digital banking arena, supported by its relatively large digital customer base. Moreover, KTB is still trading at a low valuation of 0.7x FY25F P/BV, while offering a decent dividend yield of 6.6%.
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