Finance Stocks Edge Higher as Analyst Sees a Limited Impact from Interest Ceiling Cut

Most stocks in the finance and securities sector edged higher in the morning session on Tuesday, June 22, led by Krungthai Card (KTC). The share rose 1.12% or ฿0.75/share to ฿67.75/share with a trading value of 439.26 million baht.

Followed by Micro Leasing (MICRO). The share rose 1.11% or ฿0.10/share to ฿9.10/share with a trading value of 4.49 million baht.

Srisawad Corporation (SAWAD) rose 0.69% or ฿0.50/share to ฿72.75/share with a trading value of 69.71 million baht.

Ngern Tid Lor (TIDLOR) rose 0.58% or ฿0.25/share to ฿43.00/share with a trading value of 81.41 million baht.

Muangthai Capital (MTC) rose 0.43% or ฿0.25/share to ฿58.50/share with a trading value of 244.02 million baht.

KGI Securities (KGI) forecast a limited impact on the non-banking sector, seeing the share price decline as an opportunity to “BUY”, highlighting MTC, SAWAD, and KTC due to their high margins.

KGI thinks additional measures or regulations will be more specific in the type of consumer loans and the impact to banks and non-banks will be specific to the segment. After reducing the ceiling lending rate on consumer loans, the lending rate for credit cards is lowest among types of consumer loans, so KGI expects no more rate cuts on this segment. However, the lending rates on personal loans/title loans are still high at 25%/24%, respectively, while the lending rate for nano loans is at 33%, and that may be considered by the regulator to review the ceiling rate.

Additionally, in KGI’s view, cutting lending rates will not hurt the earnings of banks and non-banks much. If the regulator forces lending rates lower, most of them will stop lending once the spread thins at 5%.  

Currently, loan yield for non-banks is around 20-24%, while operating expense comes from three parts i) cost of funds is 3-5%, ii) credit cost is 1-4%, and iii) SG&A/loan is 8-12%. Thus, net margin is around 8% for KTC, 6.5% for SAWAD and MTC, and <4% for Aeon Thana Sinsap (Thailand) (AEONTS) and Ngern Tid Lor (TIDLOR).  

KGI expects a net margin at <5% will not encourage these institutions to lend. On the other hand, going forward, KGI sees re-opening as a key theme for banks and non-banks. This is especially true for non-banks, as they are a major source of lending to street vendors. KGI anticipates them gaining solid loan growth momentum in 3Q21 and the pull back in share prices provides a buying opportunity.