Kasikornbank Public Company Limited (KBANK) Earnings Call Transcript & Summary

Good morning, everyone. I'm Kattiya Indaravijaya, CEO of KBank. Thank you for joining KBank's [ version ] on the roadshow of year 2022 today. In the meeting today, I would like to share our view on economic outlook, how it would impact banking industry, followed by a quick summary of our 2021 performance highlights, our target for the year 2022 and strategy forward to achieve our target and long-term sustainable growth. As the global economy is expected to grow at a slower pace in 2022 amid lingering risks stemming from COVID-19 outbreak, Thailand economy as well has passed its lowest point in 2021 and is on the path to recover. Export and tourism recovery and continued government measures will be the key supporting factor for Thai economy. However, there is growing concern about rising inflation, which will drive up the cost of producer and deteriorate purchasing power of consumers. Given that risk, the GDP may be tilted towards the lower bound of our forecasted GDP of 2.8% to 3.7%. The speed of recovery is uncertain. Depending on the potential resurgence of pandemic and rising inflation, it is expected that Thai economy will take at least till 2023 to return to its pre-COVID-19 level. On fiscal front, the government still have manageable fiscal resources to implement restoration measures in the post new wave of COVID-19. However, supportive fiscal measures may help elevate customer financial burden to some extent, but may not be able to offset overall impact of COVID-19 on the economy. The Bank of Thailand is expected to maintain its policy rate at the current low level under recurring uncertainties to support Thai economy recovery. On business front, the recovery of business sectors in 2022 will be uneven. Sectors related to tourism and durable goods like house, auto will still be laggard, though necessary items and linked consumer lifestyle as well as business investment, healthcare, food and beverages would recover faster. The outlook of Thai banking sector in 2022 will still witness an uncertainty in the path of recovery, depending on the pandemic situation and its effect on debt resolution after the N of Bank of Thailand relaxed the classification measures in 2023. Asset quality is still one of the key challenges, but expected to be manageable. Also, despite lingering challenges, Thai Bank Capital's liquidity position remains strong, which should be sufficient to help guard against any lingering economic risks. To recap on the year 2021 performance highlights, loan growth was around 7.9%, down from around 12% in the year before, reflecting better general asset quality from the first year of pandemic in 2020. Around 4% to 5% of 7.9% loan growth was a new loan growth, mainly in strategic focus. The rest was from COVID-19 relief measures. As of December 2021, overall NPL situation has slightly improved to 3.76%. Credit costs also came down from 205 basis points to 173 basis points, but still relatively high compared to normal market condition to maintain prudent, even improved in COVID-19 situation, management overlay was healthy at around 20% and NPL coverage ratio of 159%. We saw improving trend of customer in the relief program. Customer joining the program reduced from starting point during 2020 of 39% to 19% as of December 2020 and down to 13% as of December 2021. For payment behavior, we observed that 94% of customer in relief measures as of December 2021 have ability to continue paying. And with the proactive risk management, we have set ECL requirement more than the customer stages represented. On the revenue side, given the economic situation and reduction in interest rate, we saw the decline in net interest margin, but with an improved fee income growth and the cost-to-income ratio was still around mid-40s. Going forward, in 2022, our revenue growth engine will still be lending, projecting growth of 6% to 8%, which is the same pace as in 2021 growth. We had come towards more well-balanced loan portfolio to improve risk-adjusted return to the overall loan book and to be more resilient to any economic uncertainty. We still continue to grow strategic focus area, namely retail loan, selected industry SME and towards more digital offering platform. We improved our customer understanding and their risk profile via data analytics, and we have used data from both our side and from our partners to be able to offer financial products, especially lending to new customers. Net interest margin would be similar to year 2021, factoring in both upside from better yield portfolio allocation and downside from ongoing customer aid to the uncertainty. The deposit franchise will still be another key area contributing to the low cost of fund. Fee income growth will probably be flat due to the large fee base in the year before and will depend on capital market activeness to enjoy fee-related product. Asset quality would still be the area that we need to closely monitor. We observed positive trend from the payment behavior, and we believe this trend could continue, but we will be always take a prudent approach to guard against any unexpected situation. As per our prudent philosophy, credit cost will be up to 160 basis points depending on market development and NPL ratio will be in the range of 3.7% to 4%. For productivity, cost-to-income ratio would be another key area that we would aim to target for low to mid-40s. For our purpose and strategy, KBank operates business in line with the principle of bank of sustainability under good corporate governance and appropriate risk management for the balance of 3 dimensions: economy, society and environment. We put the sustainability focus as a very first thing when we plan our strategy, and it was embedded in our strategy and decision-making process that drive us towards our purpose to empower every customer's life and business. We have a goal to ensure environmental stewardship towards a net zero society. And in our sustainable development policy, we set target to be net zero bank in our own operation, also to decarbonize finance portfolio emission. And we will support our customers in the transition to a net zero economy and pioneer green banking product as well as beyond financial solution to support decarbonization in Thailand. We aim to be a leading regional financial service provider, offering end-to-end products through our customer journey, both from our bank and our partner in ecosystem with our innovation and best-in-class technology to be a meaningful institution in society. In terms of company structure, we observe financial institution around the world, having both structure of bank as a top-level mother company and bank as a subsidiary of a holding company and both structures perform well in that context. And as announced by Bank of Thailand, both structures are governed under the same regulation. We believe that KBank as a top-level mother company will effectively leverage strength that we have together among our group such as customer base sales and service channel, both off-line and online, technological platform and data. Other than that, the company under the solo consolidation of bank also can leverage low cost of funds and access to unlimited funding to deliver customer experience and maximize our real sustainable value to all stakeholders. Regarding to our plan to unlock shareholders' valuation, as many people might ask, there are 2 factors that we take into consideration. First, we will try to reflect the real value of our group in KBank stock valuation as much as possible. This means we may need to improve our communication so that the public will be more aware of what we have been doing and plan to do forward. Second, we will make decision to unlock value when we are certain that the spin-off company will deliver meaningful and sustainable value to investors. The business has growth opportunity and scalable and the capital funding is necessary. Our 4 growth strategy, dominate digital payments, reimagine commercial and consumer lending, democratize investment and insurance and penetrate regional markets, as I have presented in our last year session, remain valid. Our strategic focus moving forward is to speed up and scale up our growth strategy. For example, test and learn and launch more product program to the market and work with partners to complement each other and exploring new territories. On channel strategy in the year 2021, there were accelerated shift towards digital channel due to impact of COVID and branch closing. KBank has seen significant higher transaction via digital channels and banking agents compared to 2020, while transaction as branches and e-machines have declined. In 2022, we will focus on 3 key channel strategy to increase main bank status through our channel collaboration. First, to strengthen our leader position in mobile banking as main channel; second, to embed ourselves in meaningful ecosystem; and third, to deliver the best-in-class customer experience across channel while optimizing risk and cost. For innovation and technology, we have KBTG, our Kasikorn Business Technology Group to build modern world-class technology in alignment with the bank's strategy of maintaining competitiveness and holding top regional financial provider to cope with the fast-changing customer behavior and highly competitive technology-driven marketplace. We set aside IT investment budget around 3% to 5% of total revenue each year, mostly for new innovation and application software development. For our regional market expansion in AEC plus 3. In year 2021, the net total income from regional business was contributing for 1.3% of total KBank's net total income, growing from 2020 around 29%. Net total income in every country is growing. The forecasted market loan growth in regional market will continuously increase, and this provides opportunity and room to grow in the market. In summary, it is likely to take time at least till 2023 for Thai economy to return to the pre-COVID-19 level, and there are still uncertainty that we have to monitor. Fortunately, Thai banking industry still remains strong in terms of capital and liquidity. Our 4 growth strategy are still valid and with sustainability focus as the very first thing when we plan our strategy, we are moving forward to speed up and scale up our growth strategy. And regardless of the company structure form, we believe in the substance of what we have been doing to deliver best-in-class customer experience and maximize our real sustainable value to all stakeholders. Thank you.