Bangkok--30 Nov--Fitch Ratings
Fitch Ratings has today affirmed CIMB Thai Bank Public Company Limited's (CIMBT) National Long-term at 'A+(tha)', National Short-term at 'F1(tha)', Long-term foreign currency Issuer Default rating (IDR) at 'BBB-', Short-term foreign currency IDR at 'F3', its hybrid upper tier 2 debt at 'A-(tha)', the Individual rating of 'D' and Support rating at '2'. The rating Outlook has been revised to Positive from Stable.
The affirmations reflect CIMB Bank Berhad's (CIMB; 'BBB+'/Positive) near full ownership in CIMBT and the high probability that support would be forthcoming, if needed, from its parent. The Positive Outlook on CIMBT is based on increasing integration with its parent, and on stronger support, as evidenced by a recent capital raising which should help strengthen the former's financial performance in the medium term. This has now resulted in CIMBT's alignment with its parent's Positive Outlook.
CIMBT's profitability measures continued to improve in 9M10, following a turnaround in 2009, given an absence of large one-off losses from CDO investments incurred during 2007-2008. Stronger profitability in 9M10 was attributable to lower loan provisions, improved loan yields from growth in retail loans and a fall in funding costs, with ROA and ROE of 0.9% and 14%, respectively. CIMBT's financial position was strengthened by a recent THB3.0bn rights issue, which Fitch expects to result in the bank's Tier 1 and total capital ratios increasing to about 9% and 15%, respectively (end-9M10; 6.7% and 12.4%, respectively). This should support growth amidst an improving economic environment, as well as provide a stronger buffer against market volatility.
CIMBT's asset quality is on an improving trend - NPLs fell to THB7.7bn at end-September 2010 (8.4% of total loans) from THB12.5bn at end-2009 (14.5% of total loans) as a result of the deconsolidation of NPLs following the sale of its asset management company to CIMB Group, scheduled for completion by end-2010. However, special mention loans still remain very high at 8.5% of loans at end-9M10. Its reserve coverage ratio is relatively low at 63.2% at end-9M10 (versus the industry average of 80%) and together with increasing exposure to higher yielding retail assets, the bank could see higher provisioning. CIMBT's loan to deposit ratio (including bills of exchange) has been increasing and is relatively high at 98% at end-9M10 (end-2009: 88%), although funding and liquidity risks are mitigated by support from CIMB.
A positive rating action on the Long-term ratings could occur if there is an upgrade of CIMB's Long-term IDR. As CIMBT's ratings are based on CIMB remaining the controlling shareholder, changes in the latter's shareholding or support would affect CIMBT's ratings. The Individual Rating could be upgraded by a sustained improvement in profitability, asset quality and capital.
CIMBT's hybrid upper tier 2 debt rating, based on commitment of support from CIMB, is two notches below the bank's foreign currency IDR and Long-term National rating, and is consistent with Fitch's Rating Hybrid Securities criteria. Despite loss absorption mechanisms, if the bank fails on the profit test, which is a trigger for an optional deferral, CIMB has strongly indicated that it would support the coupon payment, if necessary. In the event that the bank's capital adequacy ratio falls below 0%, or if Thailand's central bank intervenes, this falls under a mandatory deferral in which there will be no coupon payment under any circumstances. However, Fitch currently considers the risk of this as low.
CIMBT, formerly known as Bank Thai (BT), was formed in 1998 as a result of a government-initiated merger of several defunct financial institutions. The Financial Institutions Development Fund (FIDF) acquired a majority stake in BT in 2000, which was later reduced to 48.98%. In November 2008, CIMB acquired the FIDF's stake and subsequently made a tender offer for the remaining shares, and currently holds a 93.15% stake.