Thai banks' system loans feared to shrink in next three months

April's aggregate loan were unimpressive.

According to Maybank Kim Eng, aggregate loans were flat MoM (+7.9% YoY and +0.4% YTD) in April. Large banks posted MoM loan growth due to corporate loans. 

The only exception was SCB as it has a high exposure to consumer loans. Auto lenders reported loan growth contracted YTD-Apr 14. KKP was the exception due to corporate loans made in 1Q14.

Here's more from Maybank Kim Eng:

LDR plus borrowings increased slightly from lower deposit base. Most banks have lowered their deposit base to control funding cost and to maintain NIM amid weak loan demand.

TISCO experienced the highest deposit outflow of 13% YTD-Apr 14, followed by SCB and TCAP of 5%. Hence, LDR plus borrowings increased to 105% in Apr 14 from 103% in 2013.

Although Thai banks’ balance sheets remain strong with a high loan loss reserve to NPLs, the military coup is likely to slow the economy further and reduce banks’ earnings. We think the military appointed government will focus on the political reforms rather boosting economic activities.

As the banking system is the mirror of the economy, we think system loans will contract in the next three months. We believe the Bank of Thailand will lower the policy interest rate this year given the weak economic data points and lacklustre corporate earnings. Large banks with high exposure to business loans remain the safer bets due to their diversified revenue structure and better asset quality.