Thailand-based Kiatnakin Bank’s NII fell 5% QoQ in 2Q14

NIM contraction seen as the cause.

The NII of Thailand’s Kiatnakin Bank fell 5 percent QoQ due to a contraction in NIM to 3.45% as the bank had to reverse the accrued interest income from the increasing NPLs.

According to a research note from Maybank Kim Eng, non-interest income dropped 35% QoQ after KKP booked THB439m in losses from asset sales.

NPL ratio jumped to 5.6% from 4.2% in 1Q14, due to THB2.5b of NPLs in real estate loans.

Coverage ratio fell to 69% from 91% in 1Q14.

Here’s more from Maybank Kim Eng:

Reduce loan growth to 4-6% from 9%. This was mainly due to weak loan demand in the retail segment.

SME developers are unable to sell their residences as potential buyers are already carrying high amounts of debt.

Cut earnings, maintain HOLD. We cut loan growth to 5% and raise losses from asset sales to THB1.1b this year.

We expect losses from the sale of repossessed cars to remain high at THB350m per quarter due to the large number of repossessions.

Although the bank lowered credit costs in 2Q14, we maintain credit costs at 125bps as we think the bank will set them higher to build up coverage ratio in 2H14.

After fine-tuning our assumptions, we cut FY14/15F earnings by 26%/11%.

1H14 earnings account for 42% of our full year forecast.

We like KKP for its diversified business strategy but are cautious on the deterioration in asset quality.