Bangkok--1 Oct--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Kiatnakin Bank Public Company Limited’s (KK) National Long-term Rating at ‘BBB+(tha)’ and National Short-term Rating at ‘F2(tha)’. The Outlook has been revised to Positive from Stable.
The affirmation reflects KK’s improved operating performance and maintenance of strong capital, despite a weaker operating environment over the past two years. The Positive Outlook is based on Fitch’s expectation of a sustained improvement in asset quality and profitability, as well as the continued maintenance of strong capital helped by an improved domestic economic outlook. The ratings however are constrained by the bank’s weaker funding profile and greater loan concentration in higher risk segments. Also, the agency notes that external support should not be relied on, given KK’s lack of a strong institutional shareholder and its small size.
KK’s performance in H110 continued to be strong, relative to its domestic peers, with 61% higher net income yoy, due to stronger revenue, gains on the sale of foreclosed properties and increased fee from bancassurance, while enjoying lower cost of funding. The bank expects higher loan growth of 10%-15% in 2010 (2009: 8%). Net interest margin rose significantly to 5.2% in H110 from 4.9% in 2009, while operating costs have been rising due to branch expansion and increased business volume. Higher funding costs could affect margins in the medium-term.
KK’s overall asset quality steadily improved, with NPLs falling to THB5.1bn (5.4% of total) at end-June 2010 (end-2009: THB5.4bn, 6.2%) due mainly to lower impairment of hire purchase loans, which accounted for 71% of total loans. The asset quality of mid-sized residential project loans remains weak with an NPL ratio of 23%. KK has raised its provision level to the industry average, with loan loss coverage rising to 78% at end-June.
Wholesale funding increased following the issuance of THB3.4bn of short-term debentures in Q210, while deposits declined to THB71bn (68% of total funding) at end-June 2010. Loan/deposit ratio of 133% at end-June 2010 (end-2009: 115%) appears high compared to major banks, but is in line with the smaller banks. Most wholesale funding is in the form of short-term bills of exchange of less than 12 months, which could heighten liquidity risk in a volatile environment. KK’s Tier 1 ratio and total capital ratio remain very strong at 15.4% and 16.0% at end-June 2010, respectively, although this could fall if there is higher asset growth in the medium-term.
Positive rating actions could occur if there is further improvement in asset quality and greater diversification of funding profile and business mix. On the other hand, an unexpected material deterioration in asset quality and heightened liquidity risk could negatively impact KK’s ratings.
KK was established as a finance company in 1971 and as a commercial bank in October 2005. Its primary focus is auto hire-purchase lending and corporate loans, mainly to SMEs and small residential property developers. The Wattanavekin family, which has board and management representation, currently holds about 30% stake in KK.
Contact:
Primary Analyst
Narumol Charnchanavivat
Director
+662 655 4763
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330