Large banks. Are the provisioning fears overdone?

[david]

The BoT estimates total provisioning required to comply with IAS 39 to be Bt68bn,
to be completed by the end of 2007. However, the banking system has already
set aside Bt50bn during the past two quarters. Of the remainder, we understand
Thai Military Bank needs to set aside Bt9bn and Bank of Ayudhya Bt7bn. This
implies that all of the remaining banks are fully compliant with IAS 39, or very
close to it. Following 1Q07 results there is an additional concern from some
investors about new NPL formation. However, from our recent discussions with
management at several of the large banks, there has not been a significant
increase in NPLs in 2Q07, contrary to claims by some market commentators. In
short, whilst we understand the markets fears about increasing provisioning, we
believe they are likely to be exaggerated. Maintain long-term buy on the banks.