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FINANCIALS
Banking on the rebound
Despite robust profit growth in 2005, banking’s 16% TSR was a disappointment
By DARANA CHUDASRI
Thai banks enjoyed a banner year in 2005, with steady loan growth, rising interest margins and a supportive economic environment. Net profits for listed banks in 2005 totalled 95.38 billion baht, up 15% from the year before, outpacing the 13% rise in profits for the entire Stock Exchange of Thailand.
 But for investors, banks continued to disappoint, with a total shareholder return of just 16% for the year, underperforming the 20.2% gain for the entire market. On a 10-year basis, the banking sector remains the worst performing sector out of the 27 on the market, with a TSR of -11.3% compared with a 2.2% rise for the overall SET, and 25.6% for the topranked food and beverages sector.
But 2005 was not necessarily as disappointing for the sector as one might think, particularly when considering that the sector rebounded sharply from 2004's one-year TSR of -12%.
Analysts predict a continued rebound in 2006 for banks and their investors. Rising interest rates, while potentially having a negative effect on new loan demand, will have only a minor impact on funding costs and net interest spreads, given that recent rate hikes have been largely focused on long-term fixed deposits rather than on call savings accounts that represent the bulk of the savings base.
Structural improvements made in the wake of the 1997 crisis are also reaping dividends, namely in the areas of cost control, risk management, technology platforms and channel management.
A saxophone player
serenades passers-by
outside the Bangkok
Bank headquarters to
help promote a creditcard
campaign.
Bangkok Bank’s
market capitalisation,
at 200.4 billion baht,
accounted for nearly a
quarter of the entire
sector. |
Most of the top banks project loan growth of 12-15% for 2006, although political uncertainties, sluggish business investment and weak consumer confidence are likely to force downward revisions in loan targets over the next several months.
Thailand's biggest bank, Bangkok Bank (BBL), posted a relatively weak TSR for 2005 at just 2.7%. Bangkok Bank's market capitalisation, at 200.4 billion baht, accounted for nearly a quarter of the entire sector, and overshadowed Kasikornbank, Krung Thai Bank, and Bank of Ayudhya, all three of which posted much better one-year TSRs of more than 25%.
KBANK led all Thai banks with a 2005 TSR of 35.8% and a three-year TSR of 40%, and ranked only second to BBL in five-year returns at 29.6%, compared with 33.4% by its larger competitor.
Other banks posted more variable results with little correlation in size. Among the smallest and newest banks for instance, Tisco had a strong 20.1% return for 2005, while BankThai (BT) returned 23.1%, in sharp contrast to -12.9% shown by Thanachart Bank (NBANK), -7.3% for Kiatnakin (KK), and -19.1% for ACL Bank, the worst performer in 2005.
Therapong Vachirapong, research director at Phatra Securities, said total returns for banks this year were likely to come to around 10-15%, with an average dividend yield of 4-5% and capital gains ranging from 5-10%.
``Stock prices rose considerably over the first two months of the year, with the banking index jumping from 260 points at the end of 2005 to a peak of 300 at the beginning of the year, before falling back to around 280 now,'' he said.
``The upside is limited though. We're forecasting a 5-10% gain in share prices for the rest of the year.''
Banks this year will have to pay corporate income tax for the first time since the 1997 economic crisis, when taxes were waived to help them survive, with the exception of Kasikornbank, which began paying corporate taxes last year.
Mr Therapong cautioned that the delays in the government's megaprojects and political uncertainties would also affect profit and loan growth.
Adit Laixuthai, KBANK's chief investor relations officer, said his bank benefited last year from higher net interest margins following the redemption of outstanding hybrid capital in 2004.
A renewed shift to small-business customers also helped boost margins, despite difficult economic conditions as a result of high oil prices and rising inflation.
Net profits at Kasikornbank totalled 13.93 billion baht last year, down from 15.34 billion in 2004 and attributed primarily to tax charges.
``We don't think higher interest rates will be a significant factor, so long as deposit interest rates are maintained. But growing competition and high oil prices will put downward pressure on industry net interest margins,'' Mr Adit said.
A saxophone player serenades passers-by outside the Bangkok Bank headquarters to help promote a creditcard campaign. Bangkok Bank's market capitalisation, at 200.4 billion baht, accounted for nearly a quarter of the entire sector. At the other end of the scale, ACL Bank's Apichart Kasemkulsiri, an executive vice-president, blamed low market liquidity for the bank's poor share price performance last year.
``We did not pay a dividend, and additionally faced uncertainties regarding our banking licence, so investors mostly stayed on the sidelines,'' said Mr Apichart. ACL Bank formally won its banking licence from regulators in December.
At the end of 2005, ACL was trading at just 5.70 baht per share, or under its book value of 6-7 baht.
``I think if you look at our market price and fundamentals, with our bank licence we should be able to draw investors once we prove ourselves in performance this year,'' Mr Apichart said. He added that the bulk of the bank's stock was held by institutional investors, although the free float should increase as Bangkok Bank reduced its holdings.
Bangkok Bank, formerly ACL's largest shareholder stemming back to its roots as the finance company Asia Credit, has cut its stake to around 20% now from 30% in 2005, and will eventually divest its holdings completely due to regulatory requirements.
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