Bangkok--14 Jun--Fitch Ratings
Fitch Ratings has affirmed Siam Commercial Bank Public Company Limited’s (SCB) Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘BBB+’ with Stable Outlook. A full rating list is provided below.
The ratings reflect SCB’s solid performance and strong reserves and capitalisation which provide a buffer against severe credit stress. The ratings also reflect SCB’s strong domestic deposit and loan franchises. The bank’s key performance metrics compare favourably with global peers. The Stable Outlook reflects Fitch’s expectations that SCB will maintain strong profitability and capitalisation, supported by sustained economic recovery in Thailand.
The bank’s Long-Term Foreign Currency IDR is at the Country Ceiling and is one notch above the sovereign’s Long-Term Foreign Currency IDR of ‘BBB’, due to its standalone financial strength, 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 rating may be downgraded if there is a sustained increase in loan concentration, rapid growth increasing the potential for deterioration in asset quality or weakening its liquidity profile, or a higher exposure to sovereign debt. However, Fitch views these as remote prospects, which is reflected in the Stable Outlook.
SCB has continued to report a solid performance with a net profit (including minority interests) of THB24.3bn in 2010, up 16.7% yoy, backed by higher net interest revenue, stronger fee income and lower loan provisioning. In Q111, SCB’s net profit (excluding one-off gain) increased 25% yoy, as a result of strong loan growth (up 6.6% ytd) with increasing net interest and fee income, and a decline in provisioning. Normalised profitability metrics measured by return on average assets (ROAA) and return on average equity (ROAE) improved to 2% and 18.4% at end-March 2011 (end-2010: 1.8% and 16.2%, respectively).
SCB’s asset quality continues to improve, with impaired loans declining to THB38.3bn (3.4% of total loans) at end-March 2011 from THB44.8bn (4.8%) at end-2009, due to active debt restructuring and limited increase in NPLs. Also, special mention loans (SMLs) declined to THB15bn (1.3% of total loans) from THB32.6bn (3.5%) during the same period. SCB’s loan-loss coverage strengthened to 110.5% at end-March 2011 from 107.3% at end-2010 and 95.7% at end-2009.
SCB’s liquidity is adequate, supported by its large retail deposit franchise (90% of total funding). The bank increased USD-denominated wholesale funding in Q111, which is primarily being used to fund growth in foreign currency lending. Including its bills of Exchange, its loan-to-deposit ratio was 95.2% at end-March 2011 (end-2010: 93.3%). Despite sharp asset growth, the bank’s capital position remains strong, with a Tier 1 ratio of 10.8% and a total capital ratio of 14.6% at end-March 2011 (11.6% and 15.5%, respectively).
Given SCB’s size and systemic importance to the Thai financial sector and economy, Fitch believes there is a high probability the bank would receive state support, in case of need. However, given the bank’s resilient performance, Fitch believes the likelihood of such a need arising is low.
SCB, established under the Royal Charter in 1904, is Thailand’s oldest and fourth-largest universal bank, with a 15% market share of loans and 16% share of deposits at end-2010. The Crown Property Bureau is the largest private shareholder with a 24% stake. Although the Ministry of Finance indirectly holds 23% of SCB through the Vayupak Fund, it has limited board representation and is not involved in the management of the bank.
SCB’s ratings:
Long-Term Foreign Currency IDR affirmed at ‘BBB+’; Outlook Stable
Short-Term Foreign Currency IDR affirmed at ‘F2’
Long-term foreign currency senior unsecured debt affirmed at ‘BBB+’
Long-term foreign currency subordinated debt affirmed at ‘BBB’
Individual Rating affirmed at ‘C’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-‘
National Long-term rating affirmed at ‘AA(tha)’; Outlook Stable
National Short-term rating affirmed at ‘F1+(tha)’
Senior unsecured issuance programme affirmed at ‘F1+(tha)’
Subordinated debt affirmed at ‘AA-(tha)’