Thailand Banks:July loans,Contracted on corporate repayments

Loans fell 0.9% m-o-m. The six Thai banks under our coverage have released theirrespective July balance sheet data (Figure 1). Loans contracted 0.9% m-o-m, due torepayments from corporates. In terms of momentum, it remained stable, based onJuly’s y-o-y growth rate of 3.4% (3.3% in June), but based on the run-rate,momentum was lower vs. our full-year estimate of 4-5%.

    Loans at BBL and KTB contracted the most m-o-m. BBL and KTB saw thebiggest loan contraction at 2.7% and 1.7%, respectively, mostly on corporaterepayments. Consumer loans were relatively stable.

    Liquidity increased marginally. The loan-to-deposit ratio (LDR) in July fell to 95% m-omvs. 96% in June, largely due to loan contraction (see Figure 2). Overall the depositbase remained stable driven by an increase in deposits from KTB and TCAP; which wasoffset by contraction in deposits from SCB and KBANK. TCAP saw the largest depositinflow (+7% m-o-m), primarily from Negotiable Certificate of Deposits (NCDs); while SCBsaw a deposit outflow (-2% m-o-m) mainly coming from fixed deposits.

    Momentum stable for now; slight pick-up expected in 2H17e. Loan growth wasweak in July, but momentum should pick up in 2H17e on the back of seasonaldemand. In addition, the sector is currently trading at a 1.1x PB 2017e (10x 2017ePE) vs. an ROE of 12%, which is not expensive, in our view. We believe thatdownside risks look fairly limited, given ongoing stability in the economy, and marketexpectations on the sector are low. The key catalyst is improving macro indicators,which should help stabilise asset quality. Our preferred stocks are KTB (which standsto benefit more than peers from peaking NPLs and infrastructure projects) and BBL(attractive valuation and infrastructure play), both of which are Buys.