Bangkok--28 Feb--Fitch Ratings
Fitch Ratings has affirmed Thailand’s Government Savings Bank (GSB), Bank for Agriculture and Agricultural Cooperatives (BAAC) and Government Housing Bank (GHB) at Support ‘2’.
The agency believes there is a high probability that state support would be forthcoming, if necessary, considering the respective acts under which the banks were established, the government’s full ownership in each bank (99.8% in BAAC) and their public policy roles. The banks have played key roles in Thailand’s financial system, providing support to low-income groups and civil servants. In recent years, they have expanded their loan portfolios to serve government policies.
Although largely reliant on deposit funding, there is tangible evidence of support having been provided in recent years, including through capital injections and debt guarantees. Fitch notes that, if ever needed, the support generally requires the Cabinet approval, although the government has closely monitored these three banks’ financial position to ensure the timeliness of support.
Scope for any rating upgrade is limited by the Thai sovereign (Long-Term Foreign Currency Issuer Default Rating: ‘BBB’/Stable). Meanwhile the ratings may be downgraded if the government materially reduces its ownership and/or if the propensity to support these policy banks weakens.
GSB (with total assets of THB1.32trn at end-September 2010) is the principal government-owned savings bank. Performance remained strong in 9M10 with a net profit of THB14.5bn (up 26% yoy) due to higher net interest income resulting from strong loan growth, particularly unsecured personal loans (mainly to civil servants) and loans to state enterprises since 2009. Net interest margins (NIM) remained stable at 2.9%, partially due to higher exposure to low yielding government-related loans. While GSB’s NPLs rose to THB18.5bn at end-9M10 (end-2009; THB17.3bn), they were still modest at 1.9% of total loans, although this could rise given the strong loan growth and its policy role. Loan loss reserves remained strong at THB26.4bn at end-9M10 or equivalent to 143% NPL coverage. GSB’s equity to assets ratio, while falling due to loan growth, was still strong at 8.4% at end-9M10.
BAAC (with total assets of THB761.6bn at end-H1 of the financial year ending March 2011) is the largest finance lender to farmers in Thailand. The bank reported strong performance for H1FY10 with a net profit of THB4.3bn (H1FY09: THB4bn), mainly due to higher interest revenue from loans related to government projects and lower provisions. NIM narrowed to 4% in H1FY10 (FY09: 4.8%) due to lower yield on loans. For H210, BAAC’s performance is expected to remain inline with H1FY10. At end-H1FY10, BAAC’s NPL rose sharply to THB62.4bn or 11.2% of loans (FYE09: THB42.5bn or 8.3%) as farmers were affected by drought and pests. The widespread flooding in H2FY10 further negatively affected farmers which could see a further rise in the bank’s NPLs. However, asset quality could stabilise with increased government financial assistance to affected farmers and high agricultural product prices. The equity to asset ratio was strong at 10.2% at end-H1FY10, although its higher-risk agricultural loan portfolio suggests that a strong capital buffer should be maintained.
GHB (with total assets of THB678.9bn at end-2010) is the largest provider of mortgage finance in Thailand, mainly to civil servants and lower-income borrowers, with a market share of 35%. GHB reported improved overall performance in 2010, with an unaudited net profit of THB6.4bn, up 26.3% yoy, due to both lower funding costs and provisioning, although loan growth remained modest at less than 2%. The bank’s NPLs remain high, notwithstanding a slight improvement. NPLs declined to THB76.5bn (11.6% of total loans) at end-September 2010 from THB80.7bn (12.4% of total loans) at end-2009. Loan loss reserve coverage improved to 63.7% at end-9M10 (end-2009; 54.4%). The NPL ratio is expected to further decline in 2011 from planned liquidation of NPLs worth THB5bn-THB7bn. Its equity to asset ratio was weak at 5.6% at end-9M10, although GHB’s mortgage portfolio has a lower risk weighting.