Why Thai banks are expected to report soft 3Q17 earnings

Loan growth could weaken and NPLs could rise.

The nine banks under Maybank Kim Eng's coverage reported weak gross loan growth for Aug’17 of only 0.3% MoM on aggregate. In addition, a 6.2% increase in accrued interest receivables suggests deteriorating NPLs too. With Jul & Aug data on hand, analysts continue to envisage soft earnings for banks in 3Q17 (due mid Oct-17) due to slow loan growth and elevated credit cost.

Here's more from Maybank Kim Eng:

Overall loan growth remained weak in Aug’17, rising by only 0.3% MoM,leading to a 0.6% QTD decline. We highlight that BBL (-1.9%) and KTB (-1.9%) reported weak loan growth QTD while loan growth at KBANK (-0.4%) and SCB (+0.4%) was not strong either. It might suggest that corporate loans may soften this quarter, after the strong rise in 2Q17, in  line with our expectation. BAY continued to expand loans strongly, rising 0.5% QTD, the highest in the industry. Note that the drawdown in TISCO’s loans may have stopped this quarter as TISCO reported flat QTD loan growth.

Banks also reported a rise in aggregate accrued interest receivables (+6.2% MoM, +15.5% QTD), which is an indicator of deteriorating asset quality. This raises our conviction that NPLs may continue to edge up in 3Q17, forcing banks to keep credit cost at a high level. That said, the increase in TISCO/KKP’s accrued interest receivables may be slower than peers as NPLs in as credit quality in auto loans, 70% of their loan book, continued to improve.