Bangkok Bank: 4Q24F earnings to improve y/y
- Loan growth to pick up in 4Q24F but likely miss full-year target
- Fee income to grow at a low-single-digit percentage, but non-NII to increase at a strong 14% y/y in FY24F
- 4Q24F results to improve y/y but decline q/q
- Maintain BUY with TP of THB196
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While BBL’s loan portfolio contracted 1.7% YTD-Sep due to loan repayments from SME customers and loan pre-payment from overseas customers, management maintains its full-year loan growth target at 3-5%, banking on seasonal loan demand in 4Q24F.
Management revealed that while loan repayments were abnormally high YTD, loans in the pipeline remain strong, which may lead to a strong loan expansion in FY25F. Nonetheless, loans to corporate customers still increased YTD.
Note that the bank has barely any exposure to the property and construction industry in China. Most loans in China are mainly for local consumption.
NIM to be better than guidance, despite its M-rate cuts. BBL initially gave a guidance for its FY24F NIM to contract by approx. 20bps from FY23, based on its expectation for two policy rate cuts in 2024.
With the bank’s M-rate cuts earlier and after the Bank of Thailand’s (BOT) policy rate cut by 25bps on 16 Oct 2024, management now believes its FY24F NIM should be flat from last year, in line with our current assumption.
Nonetheless, we believe the bank’s yields on loans will not be impacted 1:1 by interest rate cuts, as the yields are based on benchmark rates (M-rates) plus/minus spread, which the bank can manoeuvre to a certain extent.
Fee income to grow at a low-single-digit percentage, but non-NII to rise 14% y/y in FY24F. BBL believes its fee income is likely to grow at a low-single-digit percentage in FY24F, supported by fees from bancassurance and mutual fund businesses. Our forecast is also in line with the bank’s guidance.
Note that, on top of fee income, we expect non-interest income (non-NII) to grow 14.2% y/y in FY24F, thanks mainly to improving capital market conditions in late 3Q24.
Cost-to-income ratio to remain in a high-40s. The bank expects its cost-to-income (C/I) ratio to remain in the high-40s in FY24F to support its normal operating expenses (OPEX), ongoing investments in IT systems, and marketing expenses. Note that we currently assume C/I ratio of 47.7% in FY24F.
Asset quality to remain manageable. NPL ratio increased to 3.4% at end-3Q24 (from 3.2% at end-2Q24), still within the bank’s guidance of +/-3.0% for the year. Management revealed that the increase in NPLs in 3Q24 was attributed to a relapse of some restructured loans (mainly in the manufacturing and commercial sector), which was within the management’s expectations.
Note that the magnitude of the q/q increase in NPLs was slower than the previous quarter; however, the increase in NPL ratio was due to loan contraction in 3Q24.
So far, management has had no concerns on any specific industry in terms of asset quality, and the level of NPL ratio now is considered normal, comparable to the pre-COVID level.
Credit cost likely to breach the guidance. BBL has provided for a high credit cost (again) in 3Q24, given its strong top line growth from mark-to-market gains on investments and gains on investments (thanks to improving capita market conditions in Sep 2024) in the quarter.
With that, credit cost hit 1.48% in 9M24 (vs. 1.35% in 3Q24), higher than its credit cost guidance of 0.9-1.0% in FY24F. Note that we currently assume BBL’s credit cost at 1.4% in FY24F.
4Q24F earnings to improve y/y but decline q/q. We expect BBL’s earnings to increase y/y but decline q/q in 4Q24F. The y/y increase should be attributed to higher fee income and higher non-NII – premised on favourable capital market conditions. Meanwhile, we expect OPEX to decline y/y, given the extraordinarily high IT-related expenses booked in 4Q23.
The q/q decline should be due to lower NIM (from lower yield on interest rate cuts) and lower NII, despite a pick-up in loan growth expected. While we expect fee income growth momentum to continue in 4Q24F, non-NII (such as high gains on investments) may not recur. Meanwhile, we estimate OPEX and C/I ratio to be seasonally high in 4Q.
Maintain BUY with 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 position as a proxy for corporate investments (both domestic and international), manageable asset quality, and low valuation of 0.5x FY25F P/BV.
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