Banking Stocks Rally after Better-Than-Expected Earnings in 2Q21

Stocks in the banking sector rallied in the morning session on July 22, 2021, in a speculation on better-than-expected 2Q21 earnings, mainly due to lower provision in the quarter.

Kasikorn Securities (KS) stated that the overall outlook of seven banks under KS’ coverage was better than what the securities company had anticipated due to lower provision, higher fee income and extraordinary items.

KS pointed out that Krung Thai Bank Public Company Limited (KTB) and The Siam Commercial Bank Public Company Limited (SCB) outperformed their peers in this quarter, while Bangkok Bank Public Company Limited (BBL) and Bank of Ayudhya Public Company Limited (BAY) had higher earnings from other income.

However, the banks might return to set higher provisions in 3Q21 if the Covid-19 situation is prolonged, which could cause lower asset quality to the banks.

In the meantime, the policy expected to be issued by the Bank of Thailand in the coming days will force commercial banks to reveal their banking fee on more than 300 items for transparency.

KS expected a limited impact on the banks regarding this matter, but could have an impact on short-term investment. Even though the share price in the banking sector dropped lower with a cheap P/B, a strong recovery in the short-term is out of the question. Thus, KS recommended investors to monitor the Covid-19 situation before making a decision for investment.