Thailand banks pop the champagne on burgeoning demand for credit

And downside risks can be snubbed.

Thailand banks are on track to meet Nomura's 2014 forecast, with 3Q14 results previews largely in tune with its current views and what have been noticed so far.

According to a research note from Nomura, it expects both SCB and KBANK to be largely be on track to meet its 2014 earnings estimates.

Specifically, it expects KBANK to report THB45.6bn net profit (in line with consensus) and SCB to end the year with earnings of THB53.1bn (also in line).

If there is downside risk, the report said it is expected to be insignificant.

Meanwhile, credit demand is picking up in SME and housing sector. Overall business is gradually picking up in 3Q14, and the momentum should gather more intensity towards year-end.

Here’s more from Nomura:

But SCB is anticipating growth at the lower end of its 5-7% target (vs. our 6% assumption). KBANK, conversely, is projecting a slightly upbeat view than the previous quarters, but still maintains its 8% target (vs. our 7% estimate).

In any case, both banks are starting to see credit demand picking up, especially in the SME sector (for KBANK), which is driven largely by seasonality.

The corporate loan demand is stable q-q, but KBANK is starting to see positive signs in the construction and building material sectors.

In the retail sector, activities are mostly seen in mortgage segment, particularly for SCB. The bank expects the increased sales activities in the property sector to continue at least for the next six months.

Consumer lending, like credit cards and unsecured personal loans, remains lacklustre, but this is more a result of the banks’ own caution given some deterioration in asset quality in the past few quarters.

Asset quality stabilising but still takes time to recover. The banks seem to have passed the worst. There has not been notable weakness in the corporate and mortgage segment, and that is still the case.

Challenges remain in segments like consumer lending (credit cards, unsecured personal loans and auto) and small SMEs. Overall quality is slowly improving, although things could get slightly worse before they get better.

The credit cost trends for the two banks seem to have diverged, with SCB expecting credit cost at lower end of the guidance (80-85bps), whereas KBANK hinted at a small hike from current target of mid 80bps.

Stable NIM for now; pressure is building from funding competition. NIM should remain relatively stable as deposit cost has hit the bottom in 2Q14-3Q14.

Deposit competition has only started in late 3Q14 so funding is likely to trend up gradually as loan demand rebounds more strongly in 4Q14.