Thread: Banking industry: Huge budget deficit is on the way

From the Broker Report. Sounds alarming but again they are talking our of their ass, as usual.

Banking industry: Huge budget deficit is on the way

- February loan growth improved 0.3% MoM versus a decline of 1.4% in January. The banking sector (seven banks under KGI?s coverage) reported better loan growth in February, up 0.3% MoM. SCB posted the strongest MoM growth, up 1.6% or equivalent to Bt10.9bn, mainly due to aggressive expansion in medium-sized SME loans. KTB and TMB showed loan growth contraction for the second straight month.

- Expect better loan growth on earlier government disbursement. The government sped up its expenditure disbursement considerably in February, up 89.6% YoY. This brought the government?s disbursement expenditure up to 35.3% of its expenditure target (Bt1.52trn) and created a budget deficit of Bt110bn in February, reversing from a budget surplus of Bt1.7bn during the first four months of the government?s fiscal year. This huge deficit should translate into better loan growth in the second half, together with an expected recovery in consumer confidence on lower interest rates and manageable inflation.

- Short-term negative impact to NIM of banks that cut lending rates. Cutting MLR and then closely following with fixed deposit rate cuts could result in NIM contraction in the short-term given the lag effect of fixed deposit re-pricing. However, the impact to NIM should be limited in the medium to long term as banks shift their focus to higher yield loans like SMEs, hire purchase (HP), and consumer loans, as well as target substantial NPL reduction.

- Maintain Overweight SCB and KBANK are our top picks. Bank share prices could be pressured by expectations for poor 1Q07 results. However, we still expect a recovery in the investment cycle in the long term, while the medium term catalyst is improved loan growth due to the government?s stimulus program and recovery in consumer confidence. Maintain Overweight banking sector with SCB and KBANK as our top picks.

Any broker worth their salt could make up plausible arguments, backed by solid data, for whatever position they'd like their punters to take.

That said, reckon KBANK (65.50) investors should see a pretty safe 15% if not 20% well before year end, and though TMB (1.67) has recently dived by more than 40%, it looks as though it's exercising its muscles for a pusch, and worth keeping an eye on.