Banks
External and domestic headwind
We downgrade Thai banks to Underweight for 2009, as we believe the recent rally
is unjustified given the sector's direct exposure to the deteriorating economy. We
expect earnings to fall 14% in 2009. We advise investors to Sell tier-2 banks in the
market rally – our top shorts are KTB, TMB and TCAP.
Key recommendations & forecasts
Reuters Year end Recom Price Target
price
EPS
1fcst
PE
1fcst
BBL¹ BBL.BK Dec 2008 Hold B70.50 B75.00 10.20 6.95
BAY¹ BAY.BK Dec 2008 Hold B9.40 B10.20 0.94 10.00
Kasikornbank¹ KBAN.BK Dec 2008 Hold B46.75 B52.00 6.45 7.25
Kiatnakin Bank¹ KK.BK Dec 2008 Sell B11.00 B9.50 3.14 3.50
Krung Thai Bank¹ KTB.BK Dec 2008 Sell B4.22 B3.60 1.06 3.97
SCB¹ SCB.BK Dec 2008 Buy B52.00 B58.00 6.37 8.17
Thanachart Cap¹ TCAP.BK Dec 2008 Sell B7.10 B6.00 1.83 3.89
TISCO Bank¹ TISC.BK Dec 2008 Sell B7.80 B7.00 2.25 3.47
TMB Bank¹ TMB.BK Dec 2008 Sell B0.60 B0.40 0.12 5.13
1. Normalised EPS - Post-goodwill amortisation and pre-exceptional items
Source: Company data, ABN AMRO forecasts
Unjustified valuations after the rally – downgrade to Underweight
We are Underweight the Thai banks vs the country, as the 2009F PBV of the Thai banks has
expanded from 0.5x to 0.7x relative to 9.2% ROE following the market rally after the
Democrat Party set up a government in late December. We believe the rally is unjustified,
given the further downside risk to earnings from interest-rate cuts and rising NPLs. We do
not expect the price rebound to be sustained for long, as we believe 4Q08 will mark the last
quarter of good earnings and 1Q09 the start of poor earnings and also the end of the new
Government’s honeymoon period.
Directly exposed to economic headwinds; expect earnings to fall 14% in 2009
In our view, the worsened economic environment brought about by the global financial crisis
and political turmoil in 2H08 will lead to only modest loan growth (page 8), narrower NIMs
(page 13) and asset-quality deterioration (page 15). We forecast a 14% fall in Thai banks’
2009 earnings (vs our estimate of 16% earnings growth in 2008), 14% below Bloomberg
consensus, as we believe the fiscal stimulus policy will have only limited impact and the
expansionary monetary policy will be net negative to banks’ margins.
Stock action: Sell into strength for tier-2 banks
We recommend investors sell tier-2 banks in the rally on concerns about inferior profitability.
Our top shorts are KTB, TMB and TCAP. We maintain a defensive investment strategy on
blue-chip banks (SCB, KBANK and BBL). SCB is the only Buy in our universe. A positive
catalysts would be an end to the political conflict. Negative catalysts include: 1) asset quality
deterioration being worse than our base case; and, 2) a further interest rate cut, which would
be a catalyst for the Thai market to rally as the cost of equity falls but a net negative for the
Thai banks as slight relief on asset quality concerns would not offset falling NIMs.

Contents
Unfavourable 2009 earnings 3
We downgrade Thai banks to Underweight, as we estimate 2009 earnings will
decline 14% due to the worsened economic climate. We advise investors to Sell
tier-2 banks into strength. SCB is our only Buy in the sector.
3
Downgrade to Underweight vs country for 2009 3
Unjustified valuations; sell into strength 4
Return to modest loan growth 6
Government stimulus is the only support we see for the Thai economy in 2009. We
project 3% loan growth in 2009 vs 10% ytd in 11M08 as commercial banks tighten
their credit policies following the global downturn and November’s political turmoil.
6
Government stimulus the only, limited, GDP driver we see 6
Tight loan supply 8
Narrower margin 10
We believe a further cut in the repo rate for monetary expansion will be necessary
to repair the domestic economy in 2009, but we also believe this would have a
negative effect on NIM as liquidity tightens and credit costs increases.
10
MIM squeeze as further rate cut appears necessary 10
Asset quality: deteriorating but 12
It is inevitable that new NPLs will increase in 2009, in our view, but we expect them
to be manageable, backed by healthier CAR and LLR coverage.
12
New NPLs to increase… 12
… but manageable with adequate balance sheet buffer 12
Company profiles 16
Bangkok Bank 16
Krung Thai Bank 20
Siam Commercial Bank 25
Kasikornbank 30
Bank of Ayudhya 34
TMB Bank 39
Thanachart Capital PCL 44
TISCO Bank 49
Kiatnakin Bank 54