Provisions hit 2Q14 earnings of Thailand-based Bank of Ayudhya

The provisions were higher than anticipated.

Thailand-based Bank of Ayudhya's 2Q14 earnings grew 6 percent QoQ and 14 percent YoY to THB3.5b, which are below analyst and market forecasts by 4 percent and 10 percent due to higher than expected provisions.

According to a research note from Maybank Kim Eng, loan growth was 0.7 percent QoQ and 0.4 percent YTD.

Further, on the positive side, NIMs expanded 10bps QoQ to 4.25% due to the rollover of expensive deposits, while non-interest income grew 5% QoQ, in line with our forecast.

On the negative side, credit costs edged up to 1.80% from 1.73% in 1Q14, mainly from the SME and retail segments.

Here's from Maybank Kim Eng:

OPEX was flat QoQ. 1H14 earnings accounted for 43% of our full year estimates. Note that the bank has sold THB1.6b of NPLs, mostly from SME loans, in 2Q14. NPLs were flat both in absolute terms (THB30b) and ratio (3.2%).

Coverage ratio was solid at 133%. BAY expects better loan and fee income growth in 2H14 from the recovering business investment and consumer spending.

The bank also targets to reduce its NPL ratio by 20bps from current levels. We expect auto loans (25% of its loan book) to remain in a tough economic cycle in 2H14.

We are currently seeing a recovery in demand for used cars while loan quality for new cars is deteriorating. The bank will complete its merger with BTMU in Dec 2014.