Bangkok--19 Nov--Fitch Ratings
Fitch Ratings has today affirmed Krung Thai Bank Public Company Limited's (KTB) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook and Individual Rating at 'C/D'. A complete list of other ratings, all of which have also been affirmed, is included at the end of this release.
KTB's ratings are primarily based on government ownership and support. KTB is Thailand's second-largest bank with an 18.5% market share. Its major shareholder is the Bank of Thailand's (BOT) Financial Institutions Development Fund, with a 55% stake. Fitch believes there is a high probability KTB would receive state support if needed, due to its size and importance to the financial system and economy, as well as its majority state-ownership and control. The bank's Individual Rating factors in its significant domestic franchise as well as the bank's stand-alone financial position; KTB has maintained strong core capital levels, while profitability and asset quality trends have been improving, although asset quality and reserve coverage is still weaker than peers.
KTB reported stronger performance in 9M10 compared with 9M09, with a 21% increase in net profit to THB11.4bn and return on assets (ROA) of 0.9%, driven mainly by stronger revenues due to loans growth (up 11% yoy) and higher fee income. However, KTB's net interest margin (NIM) declined to 3% in 9M10 (2009: 3.2%) due to higher lower yielding assets such as loans to government and interbank and money market lending. KTB's overall performance for 2010 is likely to remain in line with its 9M10 performance, with potential for further improvement in 2011 given the improving domestic economic outlook.
Despite the weak economic conditions in the past three years, asset quality trends have continued to gradually improve. The bank's NPLs have fallen to THB81.8bn or 7% of total loans at end-September 2010 (end-2009: THB85.5bn or 8% of total loans), although NPLs remains higher than peers. Also, KTB's special-mention loans (SMLs) appeared to have stabilised at THB19.8bn at end-September 2010 or 1.7% of total loans (end-2009: THB19.1bn or 1.8% of total loans), and remained lower than peers. KTB's loan loss reserves (LLRs) have been increasing over the past few years to THB45.6bn at end-September 2010, although its coverage ratio (at 56%) is low compared with the industry average of over 80%, indicating additional provisioning risks. While specific provisioning is more in line with peers, the bank has a low level of general reserves due in part to higher exposure to government-related loans (17% of total loans) which usually requires little provisioning.
KTB's funding and liquidity remain stable as it has one of Thailand's strongest local deposit franchises as most state enterprises and government employees deposit their savings with the bank. The bank's loan to deposit ratio stood at 96.8% at end-September 2010, although the ratio would improve to a more moderate level of about 88%, if bills of exchange, which are generally classified as an alternative instrument for depositors, are included. KTB's capital appears strong with Tier 1 capital and total capital ratio of 9.5% and 15.2%, respectively at end-September 2010.
The change in the Sovereign's ratings could affect KTB's Long- and Short-term ratings, which are underpinned by government support. The Individual Rating could be upgraded by a sustained improvement in the bank's profitability and asset quality as well as the maintenance of strong capital. The Individual Rating could be downgraded by a significant deterioration in these measures.
KTB's debt and hybrid security ratings are consistent with relevant criteria, and Fitch notes that these instruments are performing. The hybrid Tier 1 security ratings are rated two notches below the bank's implied unsupported IDR and unsupported National Long-term rating based on the bank's stand-alone financial strength, particularly its strong capital and large retained earnings (THB54.8bn at end-September 2010); these are key considerations for BOT to approve coupon payments, even if the bank reports a loss (which is a potential trigger for coupon deferral). The notching difference could therefore widen, should these factors significantly weaken, especially if the BOT were to indicate it may not approve such coupon payments in the event the bank reports a loss.
KTB's ratings have been affirmed as follows:
- Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' with Stable Outlook;
- Short-term foreign currency IDR at 'F3';
- Individual at 'C/D';
- Support at '2';
- Foreign currency subordinated debt rating at 'BBB-';
- Support Rating Floor at 'BBB';
- Foreign currency offshore hybrid Tier 1 securities at 'BB';
- National Long-term rating at 'AA+(tha)' with Stable Outlook;
- National Short-term rating at 'F1+(tha)';
- National subordinated debt rating at 'AA(tha)';
- National rating on domestic hybrid Tier 1 securities at 'A(tha)';
Contacts:
Primary Analyst
Patchara Sarayudh
Associate Director
+66 2655 4761
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,Bangkok 10330, Thailand
Secondary Analyst
Vincent Milton
Senior Director
+66 2655 4759
Committee Chairperson
Jonathan Cornish
Managing Director
+852 2263 9901
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email:
[email protected].