Siam Commercial Bank braces itself for disappointing loan growth

It'll dip below sector average.

Thailand-based Siam Commercial Bank’s (SCB) CFO Khun Deepak Sarup has said that he expects the bank’s loans to grow below the sector growth of 5% this year but has also maintained a positive view on NIM as the bank expects the policy interest rate to increase in 2H15.

According to a research note from Maybank Kim Eng, NPL ratio should stay at 2.0-2.3% while credit cost should stay at 80-85bps this year.

The increasing NPL ratio is mainly due to the weak loan demand. He expects auto lending demand and asset quality to start to normalize in 2H15.

Here’s more from Maybank Kim Eng:

Expect solid earnings in 3Q14F. Loan demand remained weak. 8M14 loan growth came in at +2.8% YoY and -1% YTD, which is below our forecast of 5% this year.

Non-interest income should drop 4% YoY due to weak loan and export related fees. On a positive note, NIM should improve 7bps QoQ, thanks to lower funding cost.

CASA ratio (low cost deposit level) rose to 57% in 2Q14 from 47% in 2Q13. OPEX is expected to be flat YoY due to the effective OPEX cost controls.

Provisions should stay at 76bps, vs the company’s target of 80-85bps in FY14. Hence, we expect SCB to report 3Q14F earnings of THB13.8b (EPS: THB4.08), up 9% YoY.

Maintain BUY. We like SCB for having the lowest cost-to-income ratio and highest profitability (ROA and ROE) among the big four banks.

Our THB220 TP implies 12.5x 2015 PER and 2.3x P/BV. Stock also offers 3.0% and 3.4% dividend yield for this year and next.