Bangkok--15 May--Fitch Ratings
Fitch Ratings has upgraded CIMB Thai Bank Public Company Limited’s (CIMBT) Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-’. The Outlook is Stable. A full rating breakdown is provided below.
The upgrade primarily reflects CIMBT’s stronger strategic and operational integration with CIMB Bank Berhad (CIMB; ‘BBB+’/Stable) of Malaysia, and, to a lesser extent, the improvement in the bank’s credit profile over the past 12-18 months under more benign operating conditions, allowing for a narrower notching differential between the two banks. The parent’s expansion strategy, which is focused on improving its regional presence and franchise, includes growing the contribution from and increasing the business diversity of its Thai subsidiary. This has reinforced Fitch’s view on support from the parent for CIMBT. However, such expansion consumes capital and resources at the parent level and will take longer time to reap the benefits, which was reflected in the Outlook revision to Stable from Positive on 9 May 2011.
CIMB has also played a key role in CIMBT’s transformation programme, balance sheet clean- up and the bank’s capital injection in late 2010 which should support CIMBT’s growth in the medium term amid an improving economic environment, and provide a stronger buffer against market volatility.
CIMBT’s key performance metrics continued to improve from their trough in 2007-8 when the bank suffered from large one-time losses from CDO investments, with the returns on assets and equity increasing to 0.8% and 9.8% respectively at end-March 2011 (end-2008: 0% and 0.1%). CIMBT’s asset quality also improved as a result of the deconsolidation of non-performing loans (NPL) following the sale of its asset management company to CIMB Group in late 2010. The NPL and loan loss coverage (LLR) ratios improved to 2.6% and 100.5% at end-March 2011 (end-2009: 14.5% and 63.8%). The bank’s financial position was also strengthened by the THB3bn rights issue in late-2010, with the Tier 1 and total capital ratios improving to about 8.45% and 14%, respectively, at end-March 2011 (end-2009: 6% and 12%). Fitch expects CIMBT’s profitability measures to improve further in 2011-12, boosted by continued loan growth and higher fee-based income.
The Support Rating of ‘2’ reflects CIMB’s near full ownership (93.15%) and management control of CIMBT as well as its close name association. Given CIMB’s reputation and resources, Fitch believes there is a high probability that support would be forthcoming, if needed, from its parent. Changes in CIMB’s shareholding or support would affect CIMBT’s Support Rating and notching differential. CIMBT’s Individual ‘D’ Rating may be upgraded on account of sustainable improvements in profitability, asset quality and capital.
CIMBT's hybrid upper tier 2 debt rating is notched two levels below the bank's Long-Term IDR and National rating to reflect commitment of support from CIMB. Despite loss absorption mechanisms, if the bank fails on the profit test, triggering optional deferral, CIMB has strongly indicated that it would support coupon payment, if necessary. In the event that the bank's capital adequacy ratio falls below 0%, or if Thailand's central bank intervenes, this would result in mandatory deferral in which case there will be no coupon payment under any circumstances. However, Fitch currently considers the risk of this as low.
CIMBT, formerly known as Bank Thai (BT), was formed in 1998 as a result of a government-initiated merger of several defunct financial institutions. The Financial Institutions Development Fund (FIDF) acquired a majority stake in BT in 2000, which was later reduced to 48.98%. In November 2008, CIMB acquired the FIDF’s stake and subsequently made a tender offer for the remaining shares.
CIMBT’s ratings:
Long-Term Foreign Currency IDR upgraded to ‘BBB’ from ‘BBB-’; Outlook Stable
Short-Term Foreign Currency IDR affirmed at ‘F3’
Individual Rating affirmed at ‘D’
Support Rating affirmed at ‘2’
National Long-term rating upgraded to ‘AA-(tha)’ from ‘A+(tha)’; Outlook Stable
National Short-term rating upgraded to ‘F1+(tha)’ from ‘F1(tha)’
Upper tier 2 debt upgraded to ‘A(tha)’ from ‘A-(tha)’