Bangkok Bank: Weathering near-term turbulence
- 1Q25 earnings came in at THB12.6bn (+19.9% y/y; +21.3% q/q)
- Fee income to remain one of the key drivers for top-line growth
- FY25F earnings cut by 6% to reflect a potential slowdown in loan growth and lower NIM
- Maintain BUY with a lower TP of THB193
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Results beat expectations on higher-than-expected non-NII. 1Q25 earnings came in at THB12.6bn (+19.9% y/y; +21.3% q/q), beating both the Bloomberg consensus and our estimate by 9%, thanks to higher-than-expected non-interest income (non-NII).
The y/y increase was attributed to higher non-NII (from higher fee income, higher gains on financial instruments designated at fair value through profit or loss [FVTPL], and higher gain on investments).
Meanwhile, the q/q increase was thanks to higher non-NII (from higher fee income, higher gain on investments, and higher dividend income) and lower operating expenses (OPEX).
3M25 earnings accounted for 28% of our revised FY25F estimate.
Loans expanded 0.8% q/q in 1Q25. The q/q increase was attributed to the increase in loans to large corporate customers in the manufacturing and commercial sector, while loans in other segments declined.
In terms of loan breakdown by industry, the manufacturing and commercial sector made up of 27% of the loans, followed by the utilities and services sector at 19%, housing loan sector at 12%, real estate and construction sector at 8%, agriculture and mining sector at 3%, and others at 31% at end-1Q25.
Meanwhile, broken down by customer segment, the corporate segment comprised 48% of BBL’s total loans, followed by loans to international networks at 24%, SME loans at 17%, and retail loans at 11% at end-1Q25.
BBL cut its 2025 GDP forecast cut to 2.0% (with downside risks), from 2.5-3.0% earlier, due to rising global uncertainties from the US reciprocal tariffs.
However, management believes its loan growth target of 3.0-4.0% in FY25F is still valid (given its relatively strong loan growth in 1Q25), and the focus sectors remain large corporates and loans to international networks. Meanwhile, it is aware of a potential slowdown in its loan and top-line growth due to the customers’ reluctance in new investments amid such macro environment.
NIM to further decline in 2Q25F. NIM declined y/y and q/q in 1Q25 due to lower yields from (i) lending rate cuts in Feb 2025 (and Oct 2024) and (ii) the accrued interest income reversal from NPLs. Meanwhile, cost of funds (deposits) has yet to reprice (from Feb rate cut) in 1Q25, but the repricing should start to take effect in 2Q25F.
BBL expects two more rate cuts from the Bank of Thailand (BOT), potentially in 2Q25. This will put more pressure on NIM. Nonetheless, as we anticipate the cost of deposits will begin repricing in 2Q25F, this should somewhat cushion NIM on the downside, while the rate cuts in 2Q25F (if any) will benefit the deposit costs later in 2H25F.
Note that BBL’s CASA deposits accounted for c.62% of the bank’s total deposits as of 1Q25. However, management believes it is unlikely to cut its savings rate further from the current low rate of 0.25%, but it will manage its funding costs through fixed deposit (c.38% of total deposits) products instead.
Fee income to remain one of the key drivers for top-line growth While fee income grew impressively 9.6% y/y and 8.3% q/q in 1Q25, BBL maintains its FY25F target for fee income growth at a low-single-digit percentage, banking on the bancassurance and wealth management businesses. We believe this target is achievable and is in line with our forecast of 4.0% fee income growth in FY25F.
Note that in 1Q25, c.23% of fee income was derived from bancassurance and mutual fund fees, compared with 20-21% over the past few years.
Cost-to-income ratio improved to mid-40s in 1Q25. The bank expects its cost-to-income (C/I) ratio to remain in the high-40s to support its normal operating expenses and ongoing investment in IT systems.
However, given the near-term macro uncertainties that are likely to hinder its top-line growth, management has hinted that there are some operating costs (other than IT) that can be cut to improve its C/I ratio and preserve bottom line.
Asset quality remained in check. NPLs increased 13.9% q/q to THB97.8bn at end-1Q25, while the NPL ratio inched up to 3.0% at end-1Q25 (vs. 2.7% at end-4Q24). The increase was attributed to relapsed NPLs from the manufacturing and commercial sector, which the bank considers business as usual, based on Days Past Due (DPD).
With increased NPLs, rising economic uncertainties, and higher gain/mark-to-market gain on investments recognised in the quarter, BBL has set aside a high ECL (i.e., front-loaded) of THB9.1bn (+5.7% y/y; +18.8% q/q) in 1Q25.
With that, its coverage ratio dropped but remained high at 300% at end-1Q245 (vs. 334% at end-4Q24).
Room for credit cost to go down in the coming quarters. BBL front-loaded its credit cost given its strong top line in 1Q25. With its high coverage ratio, manageable asset quality, and potentially weaker top-line growth, it is likely that BBL will set aside lower credit costs in the quarters to come to cushion its bottomline.
Nonetheless, management maintains its guidance for a normalised credit cost level of 0.9-1.0% in FY25F (vs. 1.4% recorded in FY24). We assume BBL’s FY25F credit cost at 1.3% as we include a potential extra provision (i.e., an overlay for expected credit loss [ECL]) that the bank may set aside during the year.
Capital position remains strong. Its capital adequacy ratio (CAR) stood at 21.0%, with Tier 1 ratio at 16.5%, compared with the BOT’s minimum requirements of 12.0% and 9.5%, respectively.
FY25F earnings cut by 6%. As we incorporated BBL’s 1Q25 results and a potential slowdown in FY25F loan growth and lower NIM for the remainder of FY25F, we have cut FY25F earnings by 6%. We now estimate BBL’s earnings to grow 0.5% y/y in FY25F.
Maintain BUY with a lower TP of THB193. As we revised our FY25F forecasts, we derive a lower TP of THB193 (vs. THB196 previously) for BBL. Our TP is based on 0.65x FY25F P/BV, i.e., its 5-year average P/BV. We maintain BUY on BBL for its solid asset quality, strong non-interest revenue generation capability, and undemanding valuation of 0.5x FY25F P/BV.
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