Bangkok--29 Dec--TRIS Rating
TRIS Rating Co., Ltd. has upgraded the company rating of Siam City Bank PLC (SCIB) to “A+”from “A” and has also upgraded the rating of SCIB’s subordinated debentures to “A” from “A-”. The outlook remains “positive”. The ratings reflect the enhancement from SCIB’s stand-alone rating, as SCIB is a core subsidiary of the parent bank, Thanachart Bank PLC (TBANK), which is rated
“A +/Positive” by TRIS Rating. SCIB’s stand-alone rating reflects the management team’s ability to run a medium-sized bank with a nationwide branch network, high liquidity, good liquidity risk management, strong deposit base, and sufficient capital funds to absorb certain amount of losses from unexpected downside risks. The ratings also take into consideration deteriorating asset quality, following an anticipated rise in non-performing loans (NPL). In addition, the ratings reflect uncertainty from the business integration between SCIB and TBANK, which might limit business growth and profitability during the merging period.
The “positive” outlook reflects SCIB’s role as the core business of TBANK. The outlook also takes into account the expectation that SCIB will be able to leverage TBANK’s strengths in controlling asset quality deterioration as well as transition risk during the merger integration period. The bank’s good liquidity risk management system, experienced management team, and sufficient capital fund will help mitigate future downside risks.
TRIS Rating reported that TBANK acquired SCIB by purchasing shares of SCIB from the Financial Institutions Development Fund (FIDF) and other shareholders during the second quarter of 2010. At the end of September 2010, TBANK held a 99.24% stake in SCIB. SCIB became a core business of TBANK, contributing 56% of TBANK’s consolidated deposits and 47% of TBANK’s consolidated assets and loans. For the first nine months of 2010, SCIB’s net income accounted for 51% of TBANK’s consolidated net income. TBANK has been processing the merger integration plan with SCIB. SCIB will continue to operate as a separate commercial bank until the entire business transfer process has been completed. Under the integration plan, SCIB’s banking license will be returned to the Bank of Thailand (BOT) by 31 December 2011.
TRIS Rating said, at the end of September 2010, SCIB was the eighth largest commercial bank
in Thailand, with 4% market share in terms of assets, loans and deposits. Total assets were Bt395
billion as of September 2010, while total loans and total deposits were Bt273 billion and Bt278 billion, respectively. After the acquisition by TBANK, SCIB’s total loans and deposits declined for two consecutive quarters in the 2nd and 3rd quarter of 2010. Since October 2010, SCIB has jointly launched deposit products with TBANK by offering both banks’ customers with the same product features. owever, a smooth transition during the business integration period has yet to be monitored.
Asset quality of SCIB has continuously deteriorated from 2006 to September 2010. The ratio of classified loans with more than three months past due to total loans has continuously increased, rising from 2.6% in 2005 to 9.3% in 2009 and 10.5% as of September 2010. This level is above the industry average of 5.7% for the 11 universal banks. At the same time, the ratio of non-performing assets (NPA) (classified loans with more than three months past due, plus the outstanding amount of troubled debt restructurings and foreclosed property) to total assets also increased, rising from 9.1% in 2005 to 13.5% in 2009 and 14.3% as of September 2010.
SCIB’s ratio of allowance for doubtful accounts in 2009 was 122% of the BOT minimum requirement, and further dropped to 109% as of September 2010. This is still lower than the industry average of 149% for the 11 universal banks. The NPL coverage ratio also declined slightly to 65%, from 67% in 2009, and lower than the average of 84% for the 11 universal banks. However, SCIB had sufficient capital funds, as shown by the BIS ratio of 16.67% and the Tier-1 capital ratio of 12.27% at the end of September 2010. NPAs were 0.8 times its capital funds plus the allowance for doubtful accounts, down from 0.9 times in 2009. This indicates sufficient cushion of capital fund and allowance for doubtful accounts to absorb unexpected losses from future risks associated with adverse changes in the operating environment.
SCIB reported a net profit of Bt4,147 million in 2009, almost equal to Bt4,114 million of the net profit in 2008. The bank’s return on average assets (ROAA) and return on average equity (ROAE) slightly declined in 2009 to 0.98% and 9.81%, respectively, from 0.99% and 10.60% in 2008. For the first nine months of 2010, the net profit was Bt3,435 million, a 17% growth from the same period in 2009. The non-annualized ROAA and ROAE were 0.84% and 7.63%, respectively, slightly increasing from 0.71% and 7.04% for the first nine months of 2009. Asset quality deterioration remains a major concern. The rising NPLs might affect the profitability during the integration period, said TRIS Rating.