Bangkok--11 Oct--TRIS Rating
TRIS Rating Co., Ltd. has assigned the rating to the proposed issue of up to Bt2,000 million in senior debentures of Kiatnakin Bank PLC (KK) at “A-”. At the same time, TRIS Rating has affirmed the company rating of KK and the ratings of KK’s existing senior debentures at “A-”. The outlook remains “stable”. The ratings reflect KK’s experienced management team in core businesses, acceptable risk management and practices, good track record in improving asset quality, increased diversification of retail funding base, and strong capital fund. However, the ratings are constrained by the bank’s limited franchise value and unforeseen risks of funding market change from the implementation of the Deposits Protection Act (DPA), which will be fully effective in August 2012. In addition, the downside risks from the uncertainty in the economic and political environments as well as intense competition in both retail banking and securities businesses might limit KK’s business growth and profitability. As it is a typical model for a small bank, KK’s asset and deposits structures are not well diversified, and will limit its competitiveness in the long term.
The “stable” outlook reflects the expectation that KK will be able to sustain business growth and profitability in the medium term. The outlook also reflects the bank’s ability to control asset quality and maintain sufficient capital funds to absorb downside risks arising from uncertain economic and business environments in the future. However, the rating outlook might be pressured by unforeseen risks of an unstable deposit base after the DPA implementation is fully effective.
TRIS Rating reported that KK’s core businesses in hire purchase, residential project lending and distressed asset management are well managed with high expertise and under controllable asset quality. KK has imposed a more stringent credit policy and underwriting criteria and more focus on collection efficiency. As a result, the loan portfolio in 2009 grew by 7.8% to Bt87,117 million from Bt80,813 million as of December 2008, compared with a 22.0% growth in 2008.
Due mainly to write-offs since 2006 and attempts to control asset quality, KK’s non-performing loans (NPL) have decreased since 2007. The ratio of classified loans (sub-standard, doubtful and doubtful loss) to total loans improved tremendously, from 14.5% in 2006 to 12.4% in 2007, 8.7% in 2008, and 6.2% in 2009. The ratio improved to 5.4% at the end of June 2010. As expected, loans in its residential project segment has recorded lowest quality. Classified loans were 25.6% of total residential project loans
at the end of March 2010, up from 22.8% at the end of December 2009. The ratio improved slightly to 23.1% at the end of June 2010.
KK was able to generate better income and sustain high yield from its core businesses while succeeding in controlling its operating cost. KK reported net profits that were up 19.4% to Bt2,229 million in 2009, from Bt1,867 million in 2008. KK continued to deliver outstanding performance in the first half of 2010 by reporting a 61.3% growth in net profits to Bt1,584 million from Bt986 million for the same period in 2009. The improvement was partly due to the Bt615 million gains from the sale of foreclosed assets in the first half of 2010, compared with only Bt164 million for the same period in 2009. The ratio of operating expenses to total income declined slightly to 32.8% in 2009 from 34% in 2008, far lower than the industry average of 45.4%. The ratio was 34.7% for the first half of 2010. KK’s return on average assets slightly declined to 1.84% in 2009 from 1.85% in 2008, but substantially improved to 2.47% (annualized) for the first half of 2010.
On the funding side, KK’s strategy to increase the number of retail accounts with smaller amounts of deposit was reflected in the increase of the portion of savings deposits to 7.0% of total deposits as of December 2009 from 0.7% of total deposits as of December 2008. The ratio improved to 8.1% as of June 2010. The bank’s other major funding source has been through short-term borrowings (mostly through bills of exchange), which increased to Bt23,407 million at the end of June 2010, from Bt18,729 million at the end of December 2009. KK had a strong capital fund, as shown by its BIS ratio of 16.85% at the end of June 2010. As KK engages in high risk-high return lending, especially residential project loans, maintaining a strong capital fund and allowance for doubtful accounts is crucial to absorb unexpected losses from future downside risks, said TRIS Rating.
Kiatnakin Bank PLC (KK )
Company Rating: Affirmed at A-
Issue Ratings:
KK10NA: Bt966 million senior debentures due 2010 Affirmed at A-
KK115A: Bt1,289 million senior debentures due 2011 Affirmed at A-
KK119A: Bt1,450 million senior debentures due 2011 Affirmed at A-
KK127A: Bt2,493 million senior debentures due 2012 Affirmed at A-
Up to Bt2,000 million senior debentures due within 2012 A-
Rating Outlook: Stable