Thailand’s KBank unlikely to meet credit cost normalisation target: analysts

Credit costs are expected to remain at a high level in 2024.

Thailand’s Kasikornbank (KBank) will have a difficult time achieving its target of normalising its credit costs by 2025, according to two analysts from UOB Kay Hian.

In their latest analyst meeting, KBank’s management reportedly reiterated a normalisation in credit cost to 140 - 160 basis points (bps) in 2025, with the bank aiming to continue reducing its loans to small and medium enterprises (SMEs).

However, in Q4, asset quality showed some weakness with its non-performing loan (NPL) ratio rising to 3.19% and credit costs rising by 11bp to 219bp. This was the result of an increase in provision expense by 6%, noted UOB Kay Hian analyst Tanaporn Visaruthaphong and assistant analyst Thanawat Thangchadakorn.

“We believe the credit cost will remain at a high level in 2024 and normalisation will be difficult in the mentioned period. We think a deterioration in the SME segment will pressure KBANK’s credit cost and asset quality,” Visaruthaphong and Thangchadakorn wrote in their latest company report on KBank.

The two analysts did note KBANK’s efforts to clean up its portfolio, which they said raises concerns about slow loan growth.

“KBANK currently avoids lending unsecured loans unless it has already prepared the system and is more comfortable to penetrate again,” they noted.

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Net profit almost triples but “lower than consensus”
KBank reported a net profit of THB9.4b in 2024, a 194% surge compared to Q4 2022 but 17% lower than in Q3 2023.

The results, whilst in line with UOB’s estimate, was noted to be below the consensus expectation of a 9% decline quarter-on-quarter. 

Notably, the increase of noninterest expenses by 17% YoUand 24% Qo!, owing to one-time expenses from the impairment loss on information technology (IT) and reserving a funding for incentive bonus, contributed to KBank’s “softer” performance in Q4, said UOB Kay Hian.

Provision expenses also increased by 6% in Q4 compared to Q3.