Bangkok--14 Jun--Fitch Ratings
Fitch Ratings has affirmed Kasikornbank Public Company Limited’s (KBANK) Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘BBB+’ with Stable Outlook. A full rating breakdown is provided below.
The ratings reflect KBANK’s solid profitability, asset quality and capital, as well as its strong domestic banking franchise in the SME, corporate and retail banking segments. Fitch believes KBANK’s overall financial position is sufficiently robust to absorb severe credit stress.
The bank’s Long-Term IDR is at the Country Ceiling, and is a notch above the sovereign’s ‘BBB’ Long-Term Foreign Currency IDR based on its franchise, its strong standalone financial position, its moderate holding of government securities, and limited government ownership. This means there is little scope for upgrade unless there is a further material improvement in financial performance and the Country Ceiling is also upgraded. The Long-Term Foreign Currency IDR may be downgraded if there is a sustained increase in loan concentration, rapid growth increasing the potential for deterioration in asset quality, weakening its liquidity profile or a higher exposure to sovereign debt. However, Fitch views these as remote prospects in the near-to-medium term, which is reflected in the Stable Outlook.
KBANK continued to report strong performance in Q111, with a net profit (before non-controlling interest) of THB6.6bn (Q110: THB4.4bn) and a return of assets of 1.7%, mainly due to higher loan volume and margins, and stronger fee incomes. Given a still favorable economic outlook for Thailand, KBANK’s performance should remain strong in 2011. Nonetheless, downside risks could arise from intensifying competition and rising interest rates, which could increase pressure on margins.
Over the long-term, Fitch expects KBANK’s overall performance to remain among the strongest in the industry, due to its strong franchise, particularly in SMEs. KBANK’s life insurance subsidiary is expected to help boost the bank’s revenues, although the bank’s key performance drivers will remain SME and retail loan growth. In addition, the completion of KBANK’s project to enhance its core business capability and IT platform in 2013 is expected to further strengthen the bank’s capacity to generate revenues.
Despite an increase in KBANK’s non-performing loans (NPLs) in Q111 to THB35.1bn or 3.2% of total loans (end-2010: THB33.3bn/3.1%), Fitch still expects its overall asset quality to remain strong relative to major peers, supported by expected favorable economic conditions and the bank’s focus on improving credit underwriting standards. KBANK’s strong loan loss reserves (LLRs) of THB37.9bn at end-March 2011 or 107.9% of NPLs should provide strong buffer against provisioning risks.
KBANK’s funding and liquidity risks are largely mitigated by the bank’s strong domestic deposit franchise as well as its holding of high-quality liquid assets, mainly government and state enterprise bonds. KBANK’s capital remained strong with a Tier 1 capital of THB105.9bn or 9.43% and total capital of THB157.7bn or 14.04% at end-March 2011.
Given KBANK’s large deposit share and importance to the Thai economy, Fitch believes there is a high probability the bank would receive state support, should the need arise.
Established in 1945 by the Lamsam family, KBANK is Thailand’s third-largest commercial bank with a 16% market share (as of end- 2010). The bank’s major subsidiaries focus on fund management, securities, leasing and insurance. KBANK increased its economic interest in Muang Thai Life Assurance in 2009 to 38.3% from 7.5%. KBANK’s ownership is now widely dispersed with foreign, mainly institutional, shareholders holding a 49% stake. The Lamsam family still retains management positions and representation on the Board of Directors.
KBANK’s ratings have been affirmed as follows:
- Long-Term Foreign Currency IDR at ‘BBB+’; Stable Outlook
- Short-Term Foreign Currency IDR at ‘F2’
- Individual Rating at ‘C’
- Support Rating at ‘2’
- Support Rating Floor at ‘BBB-’
- Long-term foreign currency subordinated debt at ‘BBB’
- National Long-term Rating at ‘AA(tha)’; Stable Outlook
- National Short-term Rating at ‘F1+(tha)’
- National Long-term senior unsecured debt at ‘AA(tha)’
- National Long-term subordinated debt at ‘AA-(tha)’
- National Short-term senior unsecured debt at ‘F1+(tha)’