Thailand's Krungthai Bank poised to surpass 2014F loan growth expectations

Its November performance was also solid.

Thailand-based Krungthai Bank (KTB) recorded loan growth of 8% YTD-11M, the highest in the sector.

According to a research note from Nomura, it expects the bank will likely end 2014 with loan growth exceeding Nomura's estimate of 8%.

The bank reported 3% m-m loan growth in November 2014 alone, driven by government lending. Although KTB has not provided official 2015 financial targets, but as per management’s press interview, the bank expects at least 6% y-y loan growth in 2015 (based on its 3.5-4.5% GDP growth forecast), with a focus on the retail and SME sectors.

Here's more from Nomura:

We still maintain our loan growth estimate of 9% y-y for 2015F. We think the growth pattern could be similar to 2014, where 1H14 loan growth came mainly from SMEs, retail and project finance, while 4Q14 was boosted by government lending.

The bank expects loan drawdown from infrastructure-related project finance may continue into 2015. The overhaul
of the credit approval process is also another catalyst that could help to speed-up loan underwriting for the bank.

We expect Krungthai Bank (KTB) to meet our full-year earnings estimate of THB33.8bn (15.7% ROE), with net profit of THB8.7bn in 4Q14F.

We think this is likely achievable as KTB does not expect large extra loan loss provisions in 4Q14F. KTB has started to see an improving trend in asset quality since October 2014.

So possibly any NPL increase from hereon should be smaller. We expect NPL ratio to fall in 4Q14F. As a recap, KTB reported a THB5bn increase in NPLs q-q in 3Q14 (NPL ratio rose to 3.1% from 2.9% as at end-2Q14), mostly from residential mortgages and loans to small SMEs. We think these sectors, however, remain vulnerable going into 2015 given the still weak economic growth momentum.

Thus, we expect KTB to still add extra provisions moderately on top of normalised provisions (THB700m/month), similar to 2014.