KBANK not comfortable with having a lower coverage ratio than its competitors: analyst

It now stands at 130%.

Despite falling NPLs, 4Q16 earnings (THB10.2b, +87%YoY, -6%QoQ) fell short of Maybank Kim Eng's expectation by 17%, mainly due to higher provisions because we believe KBANK aims to ramp up its coverage ratio to match peers’.

"Accordingly, we cut our FY17F earnings by 14% to reflect lingering high credit cost, leading to an 8% reduction in our GGM-based TP to THB190 (based on 1.28x 17F BV with 13.5% ROE)."

Here's more from Maybank Kim Eng:

4Q top lines were in line with our expectations, but as mentioned higherthan-expected provision expenses (despite falling NPL ratio) were the main reason for our disappointment. This made credit cost for FY16 rise to 2.04%, higher than 1.90% guided earlier. We are not convinced with the reason given by management that provisions should lag NPLs for a year.

Rather we believe the main reason for this is because KBANK is not comfortable with having a lower coverage ratio (now at 130%) than its main competitors BBL and SCB (these two are expected to have more than 160% after 4Q results).

This is especially in light of IFRS9 in 2019 where big banks may be required to have at least 140% coverage ratio, according to our estimate.