Thai Bank stocks, a short story of a long decline.

Thai Bank stocks have been the long silent laggards.

While I have from time to time over the years selected some large cap stocks, likely PTTGC of late, since 1997 running Thaistocks.com, I never warmed-up nor wrote about the dominant Thai Bank stocks.  Why is this?  For one these are soo amply covered by the Thai brokers which focus on large capitalized (large cap’s) dominant SET stocks -and so I felt there was ample research on them and I could not add value giving my 2 cents worth.  But there is a more compelling reason and that is I never liked them and stated so at various times, that is investor wise.

For one they are spoiled and in my view run on an outdated business model which is a mostly bureaucratic and stale on top relying on charging very high interest rates spreads. Call them an oligopoly.  I.e. colluding together giving savers a miniscule of interest paid on their savings, while charging borrowers a large multiple over that.  In fact, Thai banks are and remain a sort of dinosaur fizzling down in relevance.  In recent times I additionally stayed away advocating any bank stock because I don’t think overall banks benefit from a low interest rates environment, even if so they charge a much larger %, to lenders. (their clients).  Further Thai banks are very stingy when it comes to loans, restricting those to most only property/land as collateral while shying away giving borrowings to foreigners of any type. Then of course ever so often they run into a huge problem when they overextended to some well-connected, gone amiss.  They remain overstaffed and over-administrative, besides little to no innovation.  When I tell any Thai banker that I view to use the SET in a responsible way as savings and long term investments alternative, most look at me like I lost my marbles.

At some point mega-events helped them. Like in year 2008-09 when so many Western financial institutions got caught up in defunct toxic housing bonds which nearly bellied up the Western world, as we know it.  Thai banks never caught-on to that horror/disaster as they did not understand these and this turned out to be a blessing! 

Nor, I must add, do I think the major 6 banks here are in any way at risk of default as they are very well capitalized and prudent, likely to a fault.  I always laugh when I hear some expats talking about spreading their savings accounts to many different banks here, so to get the full government insurance on each of their saving accounts.  Not long ago a friend of the French consular here, a certified translator, ran around telling all French people they should at most deposit 1 mill in any Thai Bank.  I think, there is virtually no risk a major Thai bank will default!

Despite the SET large cap dominant rally since last September, to understand my ongoing hesitation on banks you can read a very good/insightful article in the BKK-Post today on this industry, see here:  https://www.bangkokpost.com/news/special-reports/1410518/banking-on-the-future  

The article is shocking in that it states in numbers how many are closing down a large number of branches and downsizing, en masse.  Not least as it states:  “BEHAVIOUR CHANGE  Finance stands among the industry’s most severely affected by the onset of the digital era”. Despite this restructuring and downsizing, it’s a case of too little too late and I still don’t view Thai bank stocks favorably. Many are reporting disappointing 4 Q. ’17, profits just now.  Thai banks, could in my view much help facilitate savings intermediate in this country.

I won’t summarize the article here as it’s a quick read, but lets just say you can re-see there why in recent and not so recent times I just don’t like Thai Bank stocks.  So far this year the bank sector has lost 5% slightly underperforming the large cap SET index, even while they are dominant large cap’s!  The Thai bank index is below its high point reached in early 2015, even while the SET has set a new all time high.  Going back to just before the 1997, when the Asian financial crisis hit, and when I founded Thaistocks.com (back then advocating price soaring smaller export stocks), the Thai bank index was in 1996, double the level it is now…and up until then (late 1996) performed extremely well only to then drop off the cliff and never really recover. 

Hence the Thai bank index has seen a long slow un-even decline during the past 20 years, since the start on founding this web site.  Of course there have been bouncing periods, call it sucker rallies, but as a whole the long term investor was right to mostly avoid this sector for all the reasons we now know, and more. (see graph).  I don’t think the institutions, ETF funds or mutual funds where that fortunate or able avoiding them.

While lately its been a challenging environment to say the least with most smaller cap stocks lagging, sometimes over-time the sector rightly so avoided is what adds to long investor success.

Best Regards,

www.thaistocks.com

The long decline and anemic recovery of the Thai bank stock index, even while the SET index hit new records this year: