CGS International Securities (Thailand) (CGSI) has published a research paper on the Thai commercial banking sector, seeing improved asset quality, but still expecting headwinds on loan growth.
The asset quality of consumer loans held by Thai banks improved in the fourth quarter of 2024, according to a recent sector note from CGSI. The improvement was primarily driven by better asset quality in credit card and auto loan segments as banks implemented tighter credit standards. Data released by the Bank of Thailand (BOT) on 28th February 2025, revealed that the non-performing loan (NPL) ratio declined across four key business sectors, with services and manufacturing leading the way. Notably, the consumer loan NPL ratio also saw a drop in 4Q24, predominantly due to the decrease in NPL ratios for credit card and auto loans. This improvement is attributed to the tightening of credit standards by banks and their proactive management of NPLs over the past year.
Despite the positive trend in NPL ratios for some consumer loan segments, the sector’s Stage 2 (underperforming) loan ratio was still on the rise in 4Q24.
Analysts believe this increase was influenced by the national “You Fight, We Help” debt restructuring initiative. Interestingly, while housing loan/mortgage and personal loan segments experienced a continued increase in their Stage 2 ratios between 4Q23 and 4Q24, while credit card and auto loan segments showed a quarter-on-quarter decline in their Stage 2 ratios. The amount of new NPL formation for the sector also decreased by 7% quarter-on-quarter in 4Q24, with both new NPLs and re-entry NPLs declining by 4.1% and 17% quarter-on-quarter, respectively. This suggests that banks were more active in offering debt restructuring to customers and writing off bad loans during the same period.
Looking ahead to 2025, the outlook for different loan segments appears varied. While used car prices have shown recovery since November 2024, the growth of new car loans is expected to remain under pressure due to customers’ still-weak debt serviceability. This assessment is supported by the BOT. The sector note anticipates that domestic car sales in 2025 will likely be flat year-on-year.
The report retains a Neutral sector rating
The top sector picks identified are SCB and KTB. This preference is based on the expectation of robust dividend yields ranging from 5.5% to 9.0% per annum and healthy net profit growth of 2-12% between 2025F and 2027F, even amidst an industry-wide slowdown in loan growth. The forecast for pre-provision operating profit (PPOP) growth is -1.5%/+1.5%/+3.8% in 2025F/26F/27F, respectively.
Key downside risks to the sector outlook include the potential for higher NPLs and further policy rate cuts. Conversely, upside risks include a boost in consumption from higher inbound tourism, easing geopolitical tensions, and the government’s economic stimulus programme.
Among the highlighted companies, Kasikornbank (KBANK) is viewed as having an undemanding valuation at 7.4x P/E and 0.6x P/BV in 2025F, with expected slow EPS growth of 0.4% in FY25F. Improving asset quality in its consumer loans is expected to pave the way for lower credit costs in FY25F-26F. CGSI rated “ADD” with a target price at THB 187 per share.
Krung Thai Bank (KTB) is considered attractive with a valuation of 6.4x P/E and 0.66x P/BV in 2025F, supported by a high dividend payout ratio of 49% and expected continued improvement in asset quality driven by its large corporate segment. CGSI rated “ADD” with a target price at THB 24.10 per share.
SCB X stands out with the highest forecasted dividend yield of 9.0% for FY25F among the Thai banks under coverage, assuming an 80% dividend payout ratio for FY25F-26F, likely extending to FY27F due to slow asset growth. CGSI rated “ADD” with a target price at THB 130 per share.
