Potential rate hikes to benefit Thai banks, especially larger ones: CGS-CIMB

ANY potential rate hikes would likely benefit Thai banks, especially the larger ones, said CGS-CIMB in a report on Thursday (Sep 8).

Larger banks tend to have a bigger proportion of floating loans consisting mainly of corporates, small and medium enterprises (SMEs) and mortgage loans, while mid-to-small banks have a higher proportion of hire-purchase loans with fixed interest rates.

If rates were to be raised by 25 basis points, the FY2023 net profit of Thai banks could see an overall net positive of 3.5 per cent, led by large banks. With this in mind, the research team has reiterated its “overweight” call on the sector.

Its top picks include Bangkok Bank and SCB X for big banks and Kiatnakin Phatra Bank (KKP) for smaller banks. Notably, CGS-CIMB upgraded its calls on Tisco Financial Group and KKP to “add” on the back of strong loan growth and lower loss for auto repossessions.

It views the Thai bank sector’s risk-reward profile as attractive, amid resilient earnings growth and improving asset quality. This will come as Thailand’s economy recovers gradually, especially when it comes to tourism.

The sector is currently trading at a discount of 36 per cent to its 1-year forward book value, which is 1 standard deviation below its average.

“We believe the operational environment for Thai banks is not as dire as during the Covid-19 outbreak,” said CGS-CIMB analyst Nathapol Pongsukcharoenkul.

Furthermore, Pongsukcharoenkul expects the return on equity for banks to improve from 6 to 7 per cent (in 2020-21) to exceed 8-8.5 per cent in 2022-24.