Thai banks' profit growth to slow to 2% in Q2

Blame it on limited room for NIM expansion and subdued non-II growth.

UOB Kay Hian notes that credit costs should also remain elevated, underpinned by continued increase in NPLs. However, this should be well anticipated.

"Given the continued improvement in broad economy, we expect core operations of banks to gradually improve in 2H17, while NPLs should approach the tail-end of the cycle by the end of this year," the firm adds.

Here's more from UOB Kay Hian:

The banking sector’s 2Q17 earnings season will kick off in the second week of July. We expect earnings growth to decelerate to 2% yoy (1Q17: 8% yoy). Overall, top- line growth is expected to remain weak, underpinned by limited room for NIM expansion and sluggish non-II.

Credit quality for big banks would continue to deteriorate, forcing banks to maintain high credit costs, but this should be within expectations. In general, small-sized banks (auto hire-purchase) will report stronger earnings growth, which should be supported by falling provisions.

Among big banks, we forecast Bangkok Bank to report the best results with a 20% yoy increase in net profit to THB8.6b (US$253m) due to the absence of negative one-offs.