Bangkok--3 Dec--Fitch Ratings
Fitch Ratings has today upgraded United Overseas Bank (Thai) Public Company Limited's (UOB (Thai)) National Long-term rating to 'AAA(tha)' from 'AA+(tha)' with a Stable Outlook. At the same time, the agency has affirmed UOB (Thai)'s Long-term foreign currency (LT FC) IDR at 'BBB+' with a Stable Outlook, Short-term foreign currency IDR at 'F2', Short-term National rating at 'F1+(tha)', Individual rating at 'C' and Support rating at '2'. The upgrade reflects a reassessment of support for Singapore-based United Overseas Bank's (UOB: LT FC IDR 'AA-'/Stable) Thai subsidiary -- notwithstanding Thailand's ownership restriction, which generally limits foreign ownership to 49%. This is unlikely, in Fitch's view, to prevent a capitalisation of UOB (Thai) if that was required in the event of financial problems. UOB's stake is intended as a long-term strategic holding and it exercises effective control of the UOB (Thai) board and management. UOB injected THB2.3bn into UOB (Thai) in March 2008 to avoid future dilution from foreign ownership restrictions on further capital injections. Given UOB's reputation and resources, Fitch believes that there would be a high probability of shareholder support, if required.
UOB (Thai)'s International, National and Support Ratings are based on UOB remaining the controlling shareholder. As such, a change in UOB's shareholding or support could impact UOB (Thai)'s ratings. As UOB (Thai)'s LT FC IDR and Support rating are capped by the Country Ceiling, a change in Thailand's Country Ceiling could also affect UOB (Thai)'s LT FC IDR and Support rating. A significant and sustained improvement in profitability and asset quality could lead to an upgrade in its Individual Rating, although such an action is not anticipated in the near-term. On the other hand, a material deterioration in profitability or asset quality could negatively affect its Individual rating.
The bank's performance has shown strong improvement in H110, with net profit of THB720m, 83% higher yoy, due mainly to lower provisions. However, UOB (Thai)'s asset quality remains a weakness with high non-performing loans (NPLs) of THB8.7bn (5.9% of total loans) at end-June 2010 (2009: THB8.7bn (6.0%)). Special mention loans stood at THB3.8bn, or 2.6% of total loans at end-June 2010 (end-2009: THB4.6bn or 3.2%). Loan loss reserves (LLR) stood at THB6.2bn at end-June 2010 (73% of impaired loans).
UOB (Thai)'s funding and liquidity position remains adequate with deposits accounting for 83% of funding at end-June 2010. Loan-to-deposit ratio of 100% at end-June 2010 appears high (92% if bills of exchange are included), although liquid assets to deposits and short-term funding is strong at above 30%. UOB (Thai)'s capital is among the strongest in the sector with a Tier 1 ratio of 19.4% and total capital ratio of 20.6% at end-June 2010, although Fitch expects capital to decline due to the company's strong asset growth strategy in the medium-term. UOB (Thai) has not paid dividends to UOB, although the bank may consider paying a modest amount of dividends in the medium-term.
UOB (Thai) was established in 1939 as Bank of Asia and acquired by UOB in 2004. UOB (Thai) is Thailand's eight-largest commercial bank, with 145 branches and 2% of system loans and deposits. UOB currently holds a 99.66% stake in UOB (Thai).