Bangkok--5 Jul--Fitch Ratings
Fitch Ratings (Thailand) has assigned Thanachart Bank Public Company Limited (TBANK) a Long-Term Foreign Currency Issuer Default Rating (LTFC IDR) of 'BBB-' with Stable Outlook. The agency has also assigned a Support Rating Floor of 'BB+'. At the same time, Fitch has affirmed holding company and 51% shareholder Thanachart Capital Public Company Limited's (TCAP) ratings. A full rating breakdown is provided below.
TBANK's ratings reflect its standalone financial strength and its increased systematic importance, after its acquisition of Siam City Bank Public Company Limited (SCIB; 'BBB-'/Stable) in mid-2010 improved its loan and deposit franchise. Further, SCIB's corporates and small- to medium-sized enterprise loan book helps reduce TBANK's sector concentration risk, taking the latter's auto hire purchase to 41% of total loans at end-March 2011 from over 70% pre-acquisition.
TBANK reported a 224% yoy increase in consolidated net profit in 2010 and a 24.3% gain in Q111 mostly due to the consolidation of SCIB's results. TBANK's auto hire purchase loans also grew strongly in 2010 (up 13.4% yoy) and Q111 (up 5.3%), backed by high car sales volumes in the domestic market as a result of the economic recovery since mid-2010. Net interest margin, taking into account deposit insurance cost, declined to 3.2% in Q111 from 3.9% in Q110 on account of higher funding cost following interest rate hikes, while the bank's auto hire purchase loan rate has remained fixed. Key profitability metrics measured by return on average assets and return on average equity were 1.04% and 12.44% in Q111, which are comparable to peers.
TBANK's asset quality remains a key risk particularly following the consolidation of SCIB's weaker quality loan portfolio. The combined gross non-performing loans (NPLs) of TBANK and SCIB increased to THB38.8bn (6.3% of total loans) at end-March 2011 from THB8.4bn (2.9%) pre-acquisition. Special mention loans also rose sharply to THB35.4bn at end-March 2011 from THB19bn pre-acquisition. With loan loss provision being maintained at a stable level, reserves coverage (loan loss reserve to NPLs) weakened to 69% at end-March 2011, below the average of about 90% for Thai banks, indicating a risk of higher provisioning.
TBANK's funding profile has improved, with the stronger deposit franchise of SCIB. Including bills of exchange, its loan to deposit ratio was 94.3% at end-March 2011, in line with the average of 91% for the six major Thai banks. TBANK's liquid assets (cash, interbank, and investment) to deposits and short-term funding (interbank and bills of exchange) ratio stood at about 30% at end-March 2011, similar to most peers. Its capital position strengthened to Tier 1 captial 11.4% and total capital 14.4% at end-March 2011, following the capital-raising exercise of THB35.8bn in 2010 to support the SCIB acquisition. While the planned deduction of goodwill of THB18.7bn (incurred from SCIB's acquisition) in Q410 will reduce the bank's Tier 1, the ratio should remain at least 10%, well above the minimum regulatory requirement.
The Stable Outlook reflects TBANK's improved overall performance as well as adequate funding, liquidity and capital position. Increased ownership and support by 49% major shareholder Bank of Nova Scotia (BNS: 'AA-'/Stable) or sustained improvement in asset quality and profitability may lead to positive rating action. Meanwhile, substantial deterioration in asset quality and capital may negatively impact the ratings.
TCAP is rated one notch lower than TBANK due to its structural subordination as a holding company, double leverage ratio and its interest of just 50.9% in the latter. On a standalone basis, TCAP continued to wind down its loan portfolio to THB1.4bn at end-March 2011 (end-2010: THB1.6bn; end-2009: THB4.1bn). Unconsolidated net profit in 2010 and Q111 declined due to an absence of large investment gains and lower interest income. TCAP's double leverage, while stable, remained high at 112% at end-March 2011, compared with about 50% prior to SCIB's acquisition. However, Fitch expects leverage to remain stable over the next two to three years given no plans to make additional acquisitions or to raise equity. TCAP's equity to assets remained strong at 67.2% at end-March 2011 (end-2010: 66.2%).
TBANK is the main operating entity within the Thanachart Group.
Thanachart Bank Public Company Limited
Long-Term Foreign Currency Issuer Default Rating assigned at 'BBB-'; Outlook Stable
Short-Term Foreign Currency Issuer Default Rating assigned at 'F3'
Support Rating Floor assigned at 'BB+'
Long-Term National Rating affirmed at 'A+(tha)'; Outlook Stable
Short-Term National Rating affirmed at 'F1+(tha)'
Support Rating affirmed at '3'
Individual Rating affirmed at 'C/D'
Thanachart Capital Public Company Limited
Long-Term National Rating affirmed at 'A(tha)'; Outlook Stable
Short-Term National Rating affirmed at 'F1(tha)'
Support Rating affirmed at '5'
Long-Term National Rating of senior unsecured debentures affirmed at 'A(tha)'