Thai bank earnings to grow 21 percent

Banks will see their earnings grow by 21 percent this year on stronger loan growth of 10.7 percent, according to DBS Vickers Securities (Thailand).

Demand will be driven by corporate and SME (small and mediumsized enterprise) customers for fixed investment and working capital loans.

Banks' net interest margin will widen by 5 basis points, while fee income will increase 13 per cent and credit cost will fall by 60 basis points. Return on equity is expected to improve to 15 percent from 13.7 per cent last year.

The securities house said yesterday that it was a good time to pile up bank stocks. "Thai banks are trading at 1.5 times earnings per book value, lower than regional peers' average of 1.8 times. Banks in Hong Kong are trading at 1.9 times, Indonesia 2.5 times and Malaysia 2.2 times," it said in a research note.

"We believe Thai banks, as the regional laggards, will eventually catch up because of strong growth in 2011. The sector has experienced heavy selling in the last two months, with the sector index dipping 12 per cent on short-term profit-taking.

"But we see this as an opportunity to accumulate key banking stocks on weakness, to capitalise on the strong growth momentum in 2011," it said.

Kasikornbank, Bangkok Bank and Krung Thai Bank are its top picks, because of their strong balance sheets and position to benefit from the rises in interest rates and in loan demand from big and small borrowers.

DBS favours KBank for its strong asset quality, lowest nonperformingloan ratio and highest feeincome growth among peers. Bangkok Bank (BBL) has a strong balance sheet and highest NPL coverage ratio, while KTB is a beneficiary of the Thai Khem Khaeng stimulus package and higher government expenditures.

"We believe KBank and BBL will benefit from stronger loan demand by corporations and SMEs in 2010 along with stronger economic growth," it said.