- Kasikornbank indicates it is unlikely to meet its loan growth target of 3-5% for 2024 due to lower-than-expected growth in the first nine months.
- The bank maintains a positive outlook for net fee income growth, expecting mid-to-high single-digit increases for 2024.
- Kasikornbank’s strong capital ratios and ongoing balance sheet clean-up aim to enhance financial stability and shareholder returns.
Kasikornbank Public Company Ltd (SGX: TKKD) (SET: KBANK), commonly known as KBank, reported a 6.1% year-on-year (YoY) net profit increase in its third-quarter earnings for 2024 (Q3 2024), aligning with Bloomberg consensus.
In its results briefing, the bank maintained its 2024 financial targets but mentioned that it may not meet its loan growth target for the year. Despite this, KBank remains optimistic about its net fee income growth target.
KBank, one of Thailand’s leading banks, offers a wide range of financial services for personal and corporate customers, including deposits, loans, insurance, investments, and digital banking. The bank also provides international trade services, leasing, venture capital, asset management, and fund management.
KBank is listed on the Stock Exchange of Thailand (SET) and as a Secondary Depository Receipt (SDR) on the Singapore Exchange (SGX).
Earnings Highlights
- Net Profit Growth: KBank’s 3Q 2024 net profit stood at THB 12 billion, a 6.1% YoY increase but a 5.4% quarter-on-quarter (QoQ) decline. The company’s net profit for the first nine months (9MFY2024) reached THB 38 billion, up 15.4% YoY.
- Decline in Net Interest Margin: The net interest margin, which measures the difference between the interest income generated by the bank and the amount of interest paid out to lenders, fell to 3.68% in 3Q 2024 from 3.73% in 2Q 2024. This decline was mainly due to lower yields from earning assets.
- Volatility in Non-Interest Income: Non-interest income, which includes revenue from sources other than interest on loans, saw a 28% YoY rise but fell 10.2% QoQ, impacted by lower net insurance premiums. However, net fee income showed robust growth at 8.1% YoY and 4.4% QoQ, driven by international trade services and brokerage fees.
- Flat Loan Growth: Loan growth was flat YoY and declined 2.2% QoQ. The contraction in loans during 9MFY2024 was due to a balance sheet clean-up, stricter underwriting standards, and the reclassification of THB 7.2 billion loans as financial assets. Management noted that the balance sheet clean-up will be completed by the end of 2024.
- Slight Increase in Non-Performing Loans (NPL): The NPL ratio, which measures the percentage of loans that are in default, increased slightly to 3.82% from 3.72% in the previous quarter. The NPL coverage ratio, which indicates how well the bank has provisioned for potential loan losses, decreased marginally to 139% this quarter from 141% last quarter.
Key Takeaways from Results Briefing
- Loan Growth Expectations: KBank has indicated it is unlikely to achieve its loan growth target of 3-5% in 2024 due to lower-than-expected loan growth in 9MFY2024. It stated that loan growth in 4Q 2024 will be driven by large corporate loans.
- Fee Income Growth Outlook: The bank expects fee income growth to remain in the mid-to-high single digits, driven by mutual fund fees, commercial loan-related fees, and trade finance fees. It anticipates 4Q 2024 fee growth to be boosted by the wealth management business.
- Capital Ratios and Dividend Outlook: Its long-term target of Core Equity Tier-1 (CET-1) ratio of 13-15% considers financial stability, shareholder returns, and investment for growth. The CET-1 ratio was robust at 17.6% in 3Q 2024. KBank also expects its dividend payout ratio to gradually increase to improve shareholder returns.
Risks to Monitor
- NPL Spikes: Potential increases in NPLs from consumer and small businesses could pose risks to KBank earnings for 2024-2026.
- Interest Rate Changes: If the Bank of Thailand lowers its policy rate sharply, it could reduce the bank’s income from loans, given that Kbank has significant floating rate loans.
While KBank’s 3Q 2024 net profit growth and fee income growth are positive signs, the volatility in non-interest income and cautious loan growth warrant some attention. Investors should monitor the bank’s progress in achieving its financial targets and managing NPLs.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of the company.
Reference
CGSI Note | Kasikorn Bank | Oct 21, 2024
