Thai banks' 2016 NPL outlook "may not be as bad as the market fears": Maybank Kim Eng

Gross NPL was THB335b at the end of 4Q15.

Thai banks reported better-than-expected results in general with only BBL and KBANK reporting higher operating expenses pushing down earnings below expectations. Maybank Kim Eng notes that credit quality improved across the board and the 2016 NPL outlook may not be as bad as the market fears.

Here's more from Maybank Kim Eng:

Thai banks have concluded 4Q15 results which topped our expectations in general. Six banks (out of nine) reported higher-than-expected earnings. TCAP’s net profit may have come slightly below our projection but that was because the biggest leasing provider allotted the extra tax benefit to provisions to increase the coverage ratio, despite the plunge in NPLs. So we treat the TCAP results as a good one.

BBL and KBANK reported a shortfall in earnings. But we would like to point out that in the case of BBL, it was possibly because we were overly optimistic on 4Q15 results. Nonetheless, we agree there was a slowdown in KBANK’s growth engine, ie, non- II.

The biggest development in 4Q15, in our view, was the improvement in credit quality. For the nine banks under our coverage, gross NPL was THB335b at the end of 4Q15, a THB22b or 6.2% QoQ decline from 3Q15. However, the seasonality effect possibly played a role here as banks usually write off some bad debts at year-end.

KTB, for instance, did write off the THB12b for SSI in the UK in 4Q15 and this alone was responsible for half of the gross NPL decline in 4Q15. We note that the NPL ratio of every bank fell from 3Q15 except for KBANK and TMB. These two banks’ loan book is concentrated on SMEs, which have been hit the hardest by the economic downturn. The weakness in this group may continue for some time.