Bangkok--1 Oct--Fitch Ratings
Fitch Ratings (Thailand) has affirmed the ratings of Bank of Ayudhya Public Company Limited’s (BAY) with Stable Outlook. The Stable Outlook on BAY’s Long-term foreign currency Issuer Default Rating (IDR) is based on Fitch’s expectation that its performance and asset quality improvement is likely to be sustainable on the back of an improving economic outlook, and its capital position is expected to remain strong. In light of BAY’s relatively large share of system loans (9%) and deposits (8%), there is a moderate probability of government support, should this be needed. The full list of rating actions is included at the end of this release.
BAY’s 2009 and H110 performance continued to improve from the strong revenue growth in 2008 due to several acquisitions of consumer finance assets, although the growth rate will decline from 2011 as the bank relies more on organic growth. Lower funding costs and increased exposure to retail lending helped to boost its net interest margin, now the highest in the sector. Retail lending now accounts for 42% of total loans, while corporate and small-medium-sized enterprise (SME) lending represent 30% and 28%, respectively.
The bank’s asset quality has improved gradually, although it remains weaker than that of major peers, with non-performing loans (NPL) of THB50.0bn or 8.1% of loans at end-June 2010, down from THB52.5bn or 8.7% of loans at end-2009. With the additional sale of THB5.3bn of NPLs completed in Q310, BAY’s NPL ratio is likely to decline to about 6% by end-2010. Its loan loss reserve coverage also strengthened, to be more in line with the industry average at 81% of impaired loans at end-June 2010.
While BAY’s loan/deposit ratio appears higher than that of major banks, this is due to its increased reliance on wholesale funding to better match its asset profile after its auto hire purchase asset acquisitions. However, liquidity appears stable and in line with other major banks, with liquid assets ratio above 20%. BAY’s capital position was significantly bolstered in 2007 by GE Capital International Holdings Corporation’s (GECIH) investment. Capital levels remain strong even after declining due to acquisitions. The issuance of subordinated debentures in June 2010 helped to strengthen the bank’s Tier 2 capital. At end-June 2010, the Tier 1 and total capital ratios were 12.0% and 17.7% respectively.
The ratings of BAY’s Long-term foreign currency subordinated debt at ‘BBB-’ and National Long-term subordinated debt at ‘A+(tha)’ are consistent with Fitch’s usual practice of rating such performing instruments, one notch below the issuer’s unsupported IDR or Long-term National Rating, since it does not exhibit any loss-absorption features.
Significant improvement in BAY’s asset quality, reserves and profitability, as well as maintenance of strong capital position, may have a positive impact on it’s the Individual Rating; while a deterioration in asset quality and material capital erosion could negatively impact the Individual Rating.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank. GECIH, a subsidiary of General Electric Capital Corporation Inc., now holds 33% stake, while the Ratanarak Group holds 25%. BAY also has stakes in affiliated securities broking, fund management and insurance broking.
The full list of rating actions:
-Long-term foreign currency IDR affirmed at 'BBB'; Outlook Stable;
-Short-term foreign currency IDR affirmed at ‘F3’;
-Individual Rating affirmed at ‘C’;
-Support Rating affirmed at ‘3’;
-Support Rating Floor affirmed at ‘BB+’;
-Long-term National Rating affirmed at ‘AA-(tha)’; Outlook Stable
-Short-term National Rating affirmed at ‘F1+(tha)’
-Long-term foreign currency subordinated debt affirmed at ‘BBB-’
-National Long-term senior unsecured debt affirmed at ‘AA-(tha)’; and
-National Long-term subordinated debt affirmed at ‘A+(tha)’