Analysts are warning that Thai banking stocks could be volatile following the recent policy rate cut by the central bank and a downgrade of the country’s economic outlook by Moody’s.
Bualuang Securities (BLS) said the rate cut of 25 basis points last Wednesday initially prompted a 2.3% rebound in the SET banking index. The gain was likely a “buy-on-fact” reaction, following a 5% decline in April due to concerns over an economic slowdown and anticipated monetary easing.
Conversely, the SET finance index, which tracks non-bank financial firms, fell 1.6% on the same day, reflecting a “sell-on-fact” move after a 2% rise in April on speculation of a rate cut.
BLS expects the central bank’s Monetary Policy Committee to cut the policy rate by another 25 bps in the second half of the year, putting the year-end policy rate at 1.5%.
Each rate cut of 25 bps is estimated to shave 4% off the banking sector’s full-year earnings, with Bangkok Bank (BBL), Krungthai Bank (KTB), Kiatnakin Phatra Bank (KKP) and Kasikornbank (KBANK) among the most affected, according to the brokerage.
In addition to narrowing net interest margins, a weak economic recovery is likely to hurt asset quality in certain borrower segments. As such, BLS maintains an underweight rating on the banking sector.
Meanwhile, the outlook for smaller financial firms and asset management companies is mixed as lower rates are expected to have minimal immediate benefit for these companies.
However, the impact may turn positive next year, with BLS assigning an equal weight to the non-bank finance group and forecasting 7% earnings growth this year.
Moody’s last week also downgraded the credit outlook of seven Thai financial institutions to negative from stable, citing alignment with the sovereign credit outlook downgrade. The affected banks include BBL, Export-Import Bank of Thailand (EXIM), KBANK, KTB, Siam Commercial Bank (SCB), and TMBThanachart Bank (TTB).
Asia Plus Securities (ASPS) said the recent downgrade of the credit outlook for the financial institutions is expected to have a limited fundamental impact on funding costs, despite weighing negatively on investor sentiment.
“Although the revision raises investor concerns, ASPS believes the direct impact on the cost of funds is limited, even if credit ratings are downgraded in the future,” the brokerage said in a research note.
“This is primarily due to low reliance on debt capital markets.”
The average funding mix comprises 88% from deposits, 8% from interbank borrowings, and only 4% from bond issuance.
Regarding capital adequacy, Tier 1 capital ratios average 18%, well above the central bank’s minimum thresholds (8.5% for smaller banks like KKP and TISCO, and 9.5% for systemically important banks such as BBL, KBANK, KTB, SCB, TTB and Bank of Ayudhya (BAY).
In terms of loan-loss coverage, the average coverage ratio for the group is 180%, led by BBL (300%), KTB (182%) and TISCO (154%). These indicators reflect a sound balance sheet across the sector, Asia Plus stated.
The brokerage maintains its 2025 profit forecast for the banking sector (eight listed banks) at 240 billion baht, flat year-on-year. First-quarter profits already accounted for 27% of the full-year estimate.
The forecast factors in the recent policy rate cut on April 30.
Net interest income (NII) is expected to soften through the remainder of the year due to the downward rate cycle, and credit costs are unlikely to improve given heightened global trade policy uncertainties.
As a result, cost management and non-interest income (non-NII) from capital markets will be key factors to sustain earnings, said the brokerage.
Despite macroeconomic headwinds, strong capital buffers should support high dividend payouts from this sector, it noted.