Bangkok--3 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National rating of 'A(tha)' to Krung Thai Bank Public Company Limited's ("KTB") hybrid Tier 1 securities of up to THB9bn to be issued in the domestic market. These are non-cumulative, perpetual securities with a call option exercisable after 5 years from the issuance date, with the ability to absorb losses on a going-concern basis.
The hybrid Tier 1 security rating is rated two notches below the bank's implied unsupported National Long-term rating (of 'AA-(tha)') based on the bank's stand-alone financial strength, particularly its strong capital and large retained earnings (THB54.8bn at end-September 2010). According to the Bank of Thailand's (BoT) regulations, coupons on hybrid Tier 1 securities may be paid from profits or retained earnings. However, if a bank reports a loss, the coupons can only be paid if payment is approved by the BoT on a case-by-case basis, taking into account a commercial bank's financial strength, such as capital, profitability and retained earnings. In this regard, Fitch believes that such approval would be given, even if KTB reported a loss, in light of the bank's current level of capital and retained earnings. The notching difference could therefore widen, should these factors significantly weaken.
Fitch affirmed all of KTB's ratings on 19 November 2010 (please see the rating action commentary, entitled "Fitch Affirms Krung Thai Bank's Ratings; Outlook Stable"). 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. The bank's stand-alone financial position is strengthening with improved profitability and asset quality trends as well as maintenance of strong core capital levels.
KTB reported stronger performance in 9M10 as economic growth rebounded, 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 loan growth (up 11% yoy), lower funding costs and higher fee income. 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. KTB's funding and liquidity remain stable, while its capital is strong with Tier 1 capital and total capital ratio of 9.5% and 15.2%, respectively at end-September 2010.