Bank share prices rallied by about 30% in November as investors gained confidence in an economic recovery amid progress in the development of Covid-19 vaccines, say analysts, although non-performing loans (NPLs) are expected to surge in the second half of 2021 once debt relief schemes come to an end.
Charlie Kueyen, an analyst at KGI Securities, said Thai banks suffered a huge equity selloff with share prices plummeting by 50% during the pandemic. News of progress in the development of vaccines led bank shares to gain by about 30%, though, reaching target points.
The progress in vaccine development should drive bank valuations to be re-rated and traded at higher price-per-book value (P/BV) levels than previously forecast.
"The Thai economy may recover at a slower pace than its peers as the country's GDP relies heavily on international tourism. While there are some constraints on GDP rebounding to pre-Covid-19 levels, we hope that valuations will recover from their lows to fairer points," he said.
"We have raised target prices for large banks as the re-rated value is expected to exceed what economic conditions would suggest, while target prices for medium banks are maintained. The re-rating is based on a 4% GDP growth forecast for 2021, a mild [40%] recovery in international tourism, and a full recovery in 2022."
Trin Sittisawad, an analyst at Yuanta Securities Thailand, said banks' net profit will continue to rise in the fourth quarter as the obligation on capital reserves decreases while non-interest income and fee-based income increase.
He said a continued equity bull run would increase banks' net profit from asset appraisal, but the factor to watch is net interest margin because it needs time to recover as debtors stay in the debt moratorium second phase until the end of June 2021.
Industries heavily affected by the pandemic can stay in the programme until the end of 2021.
Mr Trin said investors' growing confidence is driven by Thai banks reporting satisfying results for their stress tests, suggesting they have high financial ratios and adequate reserves to handle the risk of economic slowdown.
"We are overweight on investment in the banking sector as the central bank permitted dividend payments after the industry passed the stress test, suggesting Thai banks remain strong," he said.
The SET index rose about 18% in November amid huge inflows into Asian bourses on improved sentiment.