Established a year later in 1945, Kasikornbank (BKK:KBANK, Financial) is Thailand’s fourth-largest bank. The company provides a broad range of consumer, commercial and corporate banking services, including lending, deposit-taking, credit-card services, international-trade financing, custodian services, asset management, investment banking, life insurance and leasing. Moreover, Kasikornbank is the leader in Thailand’s small-/mid-enterprise lending market, which offers higher margins than retail and corporate lending segments.
The Thai banking industry is in the midst of a credit cycle where asset quality started deteriorating in 2015 due to the slowing economy. In descending order of credit risk, small-/ mid-enterprise lending has represented the highest level of non-performing loans, followed by retail and corporate lending. However, we believe both Bangkok Bank and Kasikornbank are well positioned in the market and offer a margin of safety at their current prices—even after adjusting for further credit deterioration over the next few years.
Bangkok Bank applies conservative lending policies and has higher asset quality than the majority of its peers. Moreover, while not as profitable historically, the bank has the highest level of excess capital and provision coverage in the industry, providing downside protection in our opinion.
Meanwhile, Kasikornbank has higher structural profitability than most Thai banks due to its exposure to the small-/mid-enterprise lending market and its success in fee-income generation. We also appreciate Kasikornbank’s competent management team, which has a history of transparency and clear disclosure.
From Brandes' Emerging Markets Fund second quarter 2016 commentary.
