Bangkok Bank: Stands to benefit from investment relocation
- Thailand’s GDP growth cut to 1.5%-2.0%
- 2025 financial targets maintained
- Lower credit cost expected in 2H25F
- Maintain BUY with a TP of THB196
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2025 financial targets maintained. The bank maintains its financial targets for 2025. Management believes its loan growth target of 3.0%-4.0% is still achievable, supported by seasonal loan demand in 4Q25F, with a continued focus on large corporates and international networks.
BBL spots strong investment interests (and thus loan demand) in Indonesia, Vietnam, and Laos and believes it stands to benefit from future FDI flows into ASEAN. In addition, factory upgrades, corporate digital adoption/integration, and green transitions in Thailand and overseas represent additional loan opportunities for the bank.
NIM to further decline in 2H25F. Net interest margin (NIM) declined y/y and q/q in 2Q25 due to lower yields stemming from (i) lending rate cuts and (ii) the reversal of accrued interest income from NPLs. Meanwhile, cost of funds (deposits) repriced more slowly than yields.
BBL expects one more rate cut from the Bank of Thailand (BOT) in 2H25, which is expected to put more pressure on NIM. Nonetheless, the gradual repricing of deposit costs should somewhat cushion this downside. Meanwhile, it also expects one more Fed Funds rate cut in Sep or Dec, implying it foresees minimal impact on its international loan yields. Net-net, it expects NIM to remain within its target range, which is in line with our current forecasts.
Fee income growth driven by the bancassurance and wealth management businesses. While fee income declined 0.8% y/y in 1H25, due to slow banking/transaction fees, BBL maintains its 2025 target for fee income growth at a low-single-digit percentage, banking on the bancassurance and wealth management businesses to seasonally pick up in 4Q25F. We believe this target is achievable, vs. our forecast of 1.0% fee income growth in FY25F.
Note that in 1H25, approx. 6% of fee income was derived from the global market services and 22% from bancassurance and mutual fund fees.
Cost-to-income ratio to tick up in 2H25F. Its cost-to-income (C/I) ratio improved to 45.3% in 1H25 due to effective operating cost management. Nonetheless, the bank expects its C/I ratio to tick up in 2H25F due to a weaker top line and expects the ratio to remain in the high-40s in FY25F.
Lower credit cost expected in 2H25F. BBL front-loaded its credit cost given the strong top line recorded in 1H25. With its high coverage ratio, manageable asset quality, and the expectation of a weaker top line in 2H25F, it is likely that BBL will set aside lower credit cost in 2H25F.
Nonetheless, management maintains its guidance for a normalised credit cost of 0.9%-1.0% in FY25F (vs. 1.4% in FY24). Note that we assume BBL’s FY25F credit cost at 1.4%, as we include an overlay for ECL that the bank may set aside in 2H25F.
Asset quality remains within the bank’s expectations. NPL ratio increased in 1Q25 and 2Q25 to 3.2% (vs. 2.7% at end-4Q24). Nonetheless, this increase was within the bank’s expectation and is attributed to relapsed NPLs within the manufacturing and commercial sectors, which BBL considers typical business activity based on Days Past Due (DPD) analysis. Note that BBL normally does not write off or sell NPLs, preferring to restructure troubled loans for its customers.
Management has hinted at a potential further increase in NPLs in 3Q25F, while expecting restructured (NPL) loans to perform and being upstaged in 4Q25F (similar to what happened in FY24). As such, it maintains its NPL ratio target at +/-3% at end-FY25F.
Maintain BUY with a TP of THB196. 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 manageable asset quality, strong non-interest revenue generation capability, and undemanding valuation of 0.5x FY25F P/BV.
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