Kiatnakin Phatra Securities expects the Thai banking sector to reach the trough of its net interest margin (NIM) cycle in 2Q26, with pressures expected to ease meaningfully going forward.
According to its latest sector preview, the policy rate downcycle appears largely complete, with a terminal rate of 1% seen in the near term. Banks have also shifted their loan portfolios toward lower-risk, better-priced segments, helping to stabilize margins. The sector’s average NIM is forecast to decline marginally by 2 basis points quarter-on-quarter (QoQ) to 2.65% in 2Q26, indicating a bottom for this cycle.
Loan growth remains subdued but is showing early signs of recovery. Corporate lending, particularly for working capital, is gradually offsetting weaknesses in other segments. Kiatnakin Phatra forecasts a sector loan growth of 0.8% year-on-year (YoY) and 1.3% year-to-date (YTD) in 2Q26, signaling a cautiously optimistic outlook.
Despite the lower NIMs and normalization of investment gains, sector earnings are expected to remain resilient. Normalized profits for the six large banks are projected to fall by 5.8% YoY and 4.1% QoQ, largely due to the normalization of unusually high dividend income in the previous quarter. Underpinning profitability are healthy fee income, stable asset quality, and lower credit costs. The sector is set to deliver approximately 52% of full-year 2026 earnings estimates in the first half, keeping annual expectations on track.
Shareholder returns continue to be a highlight for Thai banks, with most banks poised to maintain or increase interim dividends. Higher interim payouts are forecast for KBANK, KTB, and TTB, with TTB benefitting from a lower share count following its share buyback program. 2026 dividend yields are projected at an attractive 5.7-6.9%, providing strong downside support for valuations. Kiatnakin Phatra maintains a positive view on KTB and KBANK, citing resilient earnings and upside from dividend policy improvements.
