Bangkok--9 Nov--Fitch Ratings
Fitch Ratings has today affirmed Kasikornbank Public Company Limited’s (KBANK) Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB+’ with a Stable Outlook and Individual Rating at ‘C’. A complete list of other ratings, all of which were also affirmed, is included at the end of this release.
KBANK’s ratings reflect its robust profitability, asset quality and capital, as well as its strong domestic banking franchise in the SMEs, corporates and retail banking segments. KBANK’s solid capital and reserve cushion could allow it to withstand a severe credit stress, in Fitch’s opinion, and this is considered key in affirming the bank’s ratings at the current levels. Furthermore, the bank compares quite well relative to similarly rated banks globally, particularly in terms of profitability.
Despite the weak operating environment and political turmoil over the past two years, KBANK’s profitability has been resilient. During 9M10 KBANK’s net profit (unaudited accounts and include minority interest) rose to THB15.2bn, up 36% yoy, driven mainly by higher revenues while funding costs and provisioning costs declined. However, the bank’s yoy strong performance is partly the result of having consolidated its life insurance affiliate in November 2009. Consequently, KBANK’s ROA and ROE improved to 1.4% and 14.8%, respectively, in 9M10 (2009: 1.2% and 12.5%, respectively). The agency expects KBANK’s performance to remain strong, particularly amid an improving domestic economic outlook; in this regard, Fitch recently revised Thailand’s GDP growth forecast to 7.2% in 2010 and 4.3% in 2011.
At end-September 2010, KBANK’s NPL ratio remained one of the lowest in Thailand, with NPLs continuing to decline further to THB33.5bn or 3.3% of total loans (end-2009: THB37.3bn or 4% of total loans), due to improving economic conditions, restructurings and loan write offs. Special mention loans stabilised at THB20bn or 2% of total loans (end-2009: 2.1% of total loans). KBANK’s loan loss reserves (LLRs) have gradually increased over the past few years to THB36.4bn with the LLR coverage ratio rising to 108.7% (end-2009: 91.2%). Given improving economic trends and KBANK’s strong asset quality and high reserves, these should help mitigate provisioning risks.
KBANK’s funding and liquidity position is supported by its strong domestic deposit franchise, with loans-to-deposits ratio of about 93% at end-September 2010 (including bills of exchange). The bank’s reliance on wholesale funding remains low. Capital ratios remain strong, with Tier 1 at 10.6% and total capital at 15.4% of risk-weighted assets at end-September 2010 (end-2009: 10.3% and 15.2%, respectively). Equity to assets was 9.9% at end-September 2010 (end-2009: 9.7%).
Given KBANK’s large deposit share and importance to the Thai economy, Fitch believes there is a high probability the bank would receive state support, should the need arise, although given its resilience under Fitch’s stress testing, the agency believes such a need would be unlikely. The bank’s Long-term foreign currency IDR is rated at the Country Ceiling, and is a notch above the sovereign’s ‘BBB’ Long-term foreign currency IDR; KBANK’s Long-term foreign currency IDR is based on its strong standalone financial position, a moderate holding of government securities (15% of total assets at end-September 2010), and limited government ownership. A material weakening in KBANK’s financial position or a downgrade of the Country Ceiling could lead to a downgrade of the Long-term foreign currency IDR. The Individual Rating could be upgraded by a sustained improvement in the bank’s profitability and asset quality, comparable to regional peers, as well as the maintenance of strong capital.
The debt ratings are consistent with relevant criteria and Fitch’s standard practice for rating such instruments which are performing.
Established in 1945 by the Lamsam family, KBANK is Thailand’s third-largest commercial bank with a 16% market share (as of end-September 2010). The bank’s major subsidiaries focus on fund management, securities, leasing and insurance. KBANK increased its economic interest in Muang Thai Life Assurance in 2009 to 38.3% from 7.5%. KBANK’s ownership is now widely dispersed with foreign, mainly institutional, shareholders holding a 49% stake. The Lamsam family still retains management positions and representation on the Board of Directors.
KBANK’s ratings have been affirmed as follows:
- Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB+’; Stable Outlook
- Short-term foreign currency IDR at ‘F2’;
- Individual Rating at ‘C’;
- Support Rating at ‘2’;
- Support Rating Floor at ‘BBB-’;
- Long-term foreign currency subordinated debt at ‘BBB’;
- Long-term National Rating at ‘AA(tha)’; Stable Outlook;
- Short-term National Rating at ‘F1+(tha)’;
- National Long-term senior unsecured debt at ‘AA(tha)’;
- National Long-term subordinated debt at ‘AA-(tha)’; and
- National Short-term senior unsecured debt at ‘F1+(tha)’.
Contacts:
Primary Analyst
Patchara Sarayudh
Associate Director
+662 655 4761;
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Vincent Milton
Senior Director
+662 655 4759
Committee Chairperson
Jonathan Cornish
Managing Director
+852 2263 9901