Bangkok--1 Nov--Fitch Ratings
Fitch Ratings (Thailand) has today assigned Industrial and Commercial Bank of China (Thai) Public Company Limited (ICBCT) an 'AA+(tha)' National Long-term rating, and a 'F1+(tha)' Short-term rating. The Outlook is Stable.
ICBCT's ratings reflect near full ownership and a high probability that support would be forthcoming for ICBCT, if needed, from its parent, Industrial and Commercial Bank of China (ICBC; 'A'/Stable), with the national rating based on an implied international IDR of two notches below the parent rating; ICBCT, which is very small in size relative to its parent, has now been consolidated into ICBC. ICBC is China's largest banking group, with total assets of USD1.9trn and a 17% market share of deposits at end-June 2010. In Fitch's view, ICBC is systemically important to China's banking sector and would be expected to benefit from a strong level of support, if required, from the Chinese government, its major shareholder with 75% stake.
Apart from ICBCT's close name association with its parent, there is increasing operational integration with ICBC, through the planned installation of a core banking network, to be completed by mid-2011, which will allow ICBCT to access its parent's IT, products and services. ICBCT has now aligned its long-term strategic direction with its parent's, namely to facilitate bilateral trade between Thailand and China. Key executives have been seconded from the parent to be responsible for day-to-day operations at ICBCT, and ICBC exercises control of the board of directors. The agency notes that ICBCT has strong capital and liquidity commitment from ICBC - including a committed support line from ICBC which are viewed as key support drivers for the ratings.
After a 10-year period, ICBCT could be restricted from further capital injections due to foreign ownership restrictions which generally limit foreign stakes to 49%. Nonetheless, this is unlikely, in Fitch's view, to prevent a re-capitalisation of ICBCT if that was required in the event of financial problems.
Despite a volatile operating environment in Thailand, ICBCT's overall performance has gradually improved over the last three years, driven largely by corporate loan growth during 2008-2009 and strong growth in the auto hire purchase loan portfolio of Leasing Sinn Asia, a wholly-owned subsidiary, since 2009. Net income improved to THB526m in 2009 (2008: THB361m), and remained strong at THB457m for the nine-month period to end-September (9M10). ROA and ROE were 0.9% and 4.6%, respectively, in 9M10. Nonetheless, asset quality weakened with NPLs at THB3.4bn (7.17% of loans) at end-June 2010 (end-2008: THB2.3bn; 5% of loans). Also, ICBCT's loan loss reserve coverage appears relatively weak at about 50%, implying further provisioning risks, which could impact profitability. While ICBCT's capital base is relatively small at THB12.7bn at end-June 2010, its capital ratio is strong (Tier 1 of 23.33%), although this is expected to decline with asset growth. Performance is expected to improve in the next one to two years following integration with ICBC, helped by an economic recovery.
The Stable Outlook is based on the maintenance of strong parent support. Any future changes in
ICBC's shareholding or its commitment and support to ICBCT could affect the latter's ratings. As National ratings are a relative measure against the lowest credit risk within a given country, ICBCT's National ratings could be affected by changes in either ICBC's or Thailand's International ratings.
ICBCT, formerly ACL Bank Public Company Limited, was founded in 1967 as a finance company, and was converted into a commercial bank in December 2005. ICBC acquired 97.24% of ACL Bank in April 2010 following approval from Thailand's Ministry of Finance to hold a stake of more than 49% and changed the franchise name to ICBCT. ICBCT is currently the country's smallest full-licensed bank, with a market share of assets and loans below 1%. ICBCT has 19 branches, mainly in Bangkok, with over 500 staff.