Bangkok--4 Dec--Fitch Ratings
Fitch Ratings has today affirmed TMB Bank Public Company Limited’s (TMB) Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’ and revised the Outlook to Stable from Negative. A complete list of rating actions is included at the end of this release.
The affirmations of TMB’s Individual and other ratings take into account its sizeable domestic franchise and solid capital, while the Stable Outlook on the Long-term foreign-currency IDR is based on the bank’s improving profitability and asset quality. Although these aspects still remain weaker than peers, Fitch expects the bank to continue its momentum due to recent restructuring efforts in risk management and the improving economy.
TMB’s reported strong net profit growth of 73% yoy to THB2.4bn (return on assets of 0.6%) in 9M10, due mainly to lower provisions as the loan book has been contracting; although this appears to have stabilised with the bank reporting a modest qoq loan growth at end-September 2010, and expectations are that growth will rise in 2011.
Asset quality, while improving, remains a key weakness. TMB’s impaired loans (NPL) declined to THB41.3bn or 11.6% of total loans at end-September 2010 (end-2009: THB54.4bn or 12.6% of total loans) due mainly to the THB9.3bn NPL sale in April 2010. The NPL ratio still remains high due in part to large loan book contraction of over 25% since 2007. Special mention loans (SML), while also declining, still remained high at THB27bn or 7.6% of total loans at end-September 2010 (end-2009: 47.7bn or 12.9% of total loans). Additionally, TMB’s loan loss reserves (LLRs) of THB21.8bn (52.8% of impaired loans) at end-September 2010 appear weak, indicating further provisioning risks, particularly given the high SML ratio, although migration rates from NPL to SML remain modest. Given the improving economic environment, asset quality is expected to continue to improve in 2011, further boosting earnings.
TMB’s funding and liquidity are stable. At end-September 2010, its loans/deposits ratio remained below 90%, while liquid assets/deposits and short-term funding remained high at about 30%. TMB’s Tier 1 and total capital ratios were strong at 12.3% and 17.8%, respectively, at end-September 2010, providing a strong buffer to absorb losses, if needed.
TMB’s debt and hybrid security ratings are consistent with relevant criteria, and Fitch notes that these instruments are performing. Its hybrid Tier 1 security is rated five notches below its Long-term foreign currency IDR. While this is much wider than most other similar hybrids rated by Fitch in Thailand, the notching differential reflects its loss absorption trigger and its likelihood of being activated due to its modest profitability and risk of an increase in provisioning. According to the Bank of Thailand’s (BoT) regulations, if a bank reports a loss, the coupons can only be paid if the 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. A continued improvement in profitability and retained earnings, as well as the maintenance of strong capital levels, could therefore narrow the notching of the hybrid Tier 1 security, but this would most likely be dependent upon Fitch upgrading TMB’s Individual rating. A significant improvement in performance and asset quality could positively affect the ratings.
TMB is the seventh-largest commercial bank in Thailand with assets of THB565bn at end-September 2010. ING Bank NV (ING; ‘A+’/‘F1+’/Stable) is the largest shareholder with a 30% stake, followed by the Ministry of Finance at 26% and Singapore’s DBS Bank at 7%. Fitch considers the probability of external support from the Thai government, if needed, to be moderate.
Rating actions on TMB are as follows:
- Long-term foreign currency IDR affirmed at ‘BBB-’; Outlook revised to Stable from Negative;
- Short-term foreign currency IDR affirmed at ‘F3’;
- Individual affirmed at ‘C/D’;
- Support Rating affirmed at ‘3’;
- Support Rating Floor affirmed at ‘BB+’;
- Foreign currency subordinated debt rating affirmed at ‘BB+’;
- Foreign currency offshore hybrid Tier 1 security affirmed at ‘B’;
- National Long-term rating affirmed at ‘A+(tha)’ with a Stable Outlook;
- National Short-term rating affirmed at ‘F1(tha)’;
- National Short-term debt rating affirmed at ‘F1(tha)’; and
- National subordinated debt rating affirmed at ‘A(tha)’.