Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

The latest data from both the Bank of Japan (BoJ) and the Japanese Bankers Association (JBA) confirm the trend that we noted in earlier Smartkarma Insights on Japanese bank lending, namely that lending by the major banks continues to decline in terms of the outstanding loan balance since reaching a peak in June, even though YoY growth rates remain high compared to previous years.Total loan outstandings have fallen in five of the last six months (November being the exception), primarily because of declining loan balances at the major banks.  The declaration of a State of Emergency in several prefectures, as Japan continues to battle a surge in coronavirus infections, is unlikely to change this trend significantly.  However, as noted in other recent Smartkarma Insights on the outlook for the Japanese banking sector in 2021, these are loans, not grants, and will need either to be repaid in full or, if that becomes impossible, be declared as ‘value impaired’ by the lending banks and properly reserved against.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

The latest data from both the Bank of Japan (BoJ) and the Japanese Bankers Association (JBA) confirm the trend that we noted in earlier Smartkarma Insights on Japanese bank lending, namely that lending by the major banks continues to decline in terms of the outstanding loan balance since reaching a peak in June, even though YoY growth rates remain high compared to previous years.Total loan outstandings have fallen in five of the last six months (November being the exception), primarily because of declining loan balances at the major banks.  The declaration of a State of Emergency in several prefectures, as Japan continues to battle a surge in coronavirus infections, is unlikely to change this trend significantly.  However, as noted in other recent Smartkarma Insights on the outlook for the Japanese banking sector in 2021, these are loans, not grants, and will need either to be repaid in full or, if that becomes impossible, be declared as ‘value impaired’ by the lending banks and properly reserved against.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

Japanese Bank Lending: An Ebb Tide in 2021?

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*KTB Better Results On Improving Credit Deltas: Krung Thai Bank (KTB.TB)[KTB] reported 4Q20 net profit of THB 3.5 bn, increasing THB 396 mn (13.0%) linked quarter. Despite the THB 3.2 bn (25.5%) linked quarter reduction in loss provisions, operating results actually exhibited a decline of THB 262 mn (9.0%); and*Credit Should Continue To Drive Performance: KTB’s hard work controlling credit risk is paying off, as net new NPLs increased just THB 707 mn for an annualized rate of growth of 2.6% - the lowest of the Thai banks under coverage. Provided there are no major “unknown unknowns” in the moratorium portfolio from here, we would envision KTB to at least cutting its loss provision in half from here.

*KTB Better Results On Improving Credit Deltas: Krung Thai Bank (KTB.TB)[KTB] reported 4Q20 net profit of THB 3.5 bn, increasing THB 396 mn (13.0%) linked quarter. Despite the THB 3.2 bn (25.5%) linked quarter reduction in loss provisions, operating results actually exhibited a decline of THB 262 mn (9.0%); and*Credit Should Continue To Drive Performance: KTB’s hard work controlling credit risk is paying off, as net new NPLs increased just THB 707 mn for an annualized rate of growth of 2.6% - the lowest of the Thai banks under coverage. Provided there are no major “unknown unknowns” in the moratorium portfolio from here, we would envision KTB to at least cutting its loss provision in half from here. 

Krung Thai Bank – Lower Credit Tail Risk

*Negative Jaws &amp; Operating Losses: Bangkok Bank (BBL.TB) [BBL] reported 4Q20 results of THB 2.4 bn, declining THB 1.6 bn (40.3%) on a linked quarter basis. Core operating results were even worse, coming in at a negative THB 2.4 bn and declining THB 3.8 bn (2.7x) on a linked quarter basis. Results were poor across the board with negative operating jaws and poor credit being the quarter’s themes; and *Credit Still Heading In Wrong Direction: We find that BBL’s annualized net new NPLs during the period remained at an accelerated level of 22.5%. Given the elevated increase in net new NPLs, that moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that loss reserves are short by nearly THB 50.0 bn or just under two years of 4Q20 PBT.

*Negative Jaws &amp; Operating Losses: Bangkok Bank (BBL.TB) [BBL] reported 4Q20 results of THB 2.4 bn, declining THB 1.6 bn (40.3%) on a linked quarter basis. Core operating results were even worse, coming in at a negative THB 2.4 bn and declining THB 3.8 bn (2.7x) on a linked quarter basis. Results were poor across the board with negative operating jaws and poor credit being the quarter’s themes; and *Credit Still Heading In Wrong Direction: We find that BBL’s annualized net new NPLs during the period remained at an accelerated level of 22.5%. Given the elevated increase in net new NPLs, that moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that loss reserves are short by nearly THB 50.0 bn or just under two years of 4Q20 PBT.

*Low Quality Beat: Siam Commercial Bank (SCB.TB) [SCB] reported an unimpressive 4Q20 result of THB 4.6 bn – up just THB 54 mn (1.2%) linked quarter. Were it not for strong linked quarter fee and commission growth of THB 2.8 bn (33.3%) which was primarily driven by the recognition of performance-linked compensation on bancassurance and wealth management bonus, 4Q20 results would have been an unmitigated disaster at SCB; and 
*Poor Credit and Consistently Higher Provisions To Persist: Credit trends at SCB are in complete contravention to Kasikornbank (KBANK.TB), as provisions actually increased THB 1.3 bn (9.9%) on weakened credit.SCB’s annualized net new NPLs during the period remained at an accelerated level of 63.2%. By our calculation, we find that SCB’s loss reserves are light in the neighborhood of THB 28 bn or 18 months of bottom-line results.

*Low Quality Beat: Siam Commercial Bank (SCB.TB) [SCB] reported an unimpressive 4Q20 result of THB 4.6 bn – up just THB 54 mn (1.2%) linked quarter. Were it not for strong linked quarter fee and commission growth of THB 2.8 bn (33.3%) which was primarily driven by the recognition of performance-linked compensation on bancassurance and wealth management bonus, 4Q20 results would have been an unmitigated disaster at SCB; and 
*Poor Credit and Consistently Higher Provisions To Persist: Credit trends at SCB are in complete contravention to Kasikornbank (KBANK.TB), as provisions actually increased THB 1.3 bn (9.9%) on weakened credit.SCB’s annualized net new NPLs during the period remained at an accelerated level of 63.2%. By our calculation, we find that SCB’s loss reserves are light in the neighborhood of THB 28 bn or 18 months of bottom-line results.

Siam Commercial Bank – B'assurance Masks Troubles

*Stress Continues: A competitor hosted a conference call with the management of Kasikornbank PCL (KBANK-R.TB) [KBANK] which suggests nothing positive is occurring. Credit risk remains elevated, yet half of current and projected loan growth will be used for current customer relief measures; and
*Weak Guidance: KBANK also reiterated guidance, although we weren’t left with a high degree of confidence that KBANK wouldn’t fall short in 2021.Coupled with the aforementioned credit challenges, we anticipate the roll forward of lower lending rates to continue to impact NIMs, as will the rising loan default rates.

*Stress Continues: A competitor hosted a conference call with the management of Kasikornbank PCL (KBANK-R.TB) [KBANK] which suggests nothing positive is occurring. Credit risk remains elevated, yet half of current and projected loan growth will be used for current customer relief measures; and
*Weak Guidance: KBANK also reiterated guidance, although we weren’t left with a high degree of confidence that KBANK wouldn’t fall short in 2021.Coupled with the aforementioned credit challenges, we anticipate the roll forward of lower lending rates to continue to impact NIMs, as will the rising loan default rates. 

Japan

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a holding company established through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

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Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

Japanese Bank Lending: An Ebb Tide in 2021?

The ‘dash for cash’ by large corporates appears to be over, at least in terms of lending by the major banks. Only the small secondary regionals...

J. Brian Waterhouse

Krung Thai Bank – Lower Credit Tail Risk

KRUNG THAI BANK: KTB reported a 4Q20 net profit increase of 13.0% linked quarter. KTB’s hard work controlling credit risk is paying off, as net new...

Thomas J. Monaco

Bangkok Bank – Going Backward

BANGKOK BANK: BBL reported weak 4Q20 results - declining 40.3% linked quarter. Results were poor across the board with negative operating jaws and...

Thomas J. Monaco

Siam Commercial Bank – B'assurance Masks Troubles

SIAM COMMERCIAL BANK: SCB reported an unimpressive 4Q20 result – up just 1.2% linked quarter. Were it not for strong bancassurance growth, 4Q20...

Thomas J. Monaco

Kasikornan – Unconvincing Call

KASIKORNBANK: KBANK 's credit risk remains elevated, yet half of current and projected loan growth will be used for current customer relief loans....

Thomas J. Monaco

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