Bangkok--5 Aug--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Kiatnakin Bank Public Company Limited’s (KK) Long-Term National Rating at ‘BBB+(tha)’ and Short-term National Rating at ‘F2(tha)’. The Outlook on the Long-term National Rating is Positive.
The Long-Term National Rating reflects KK’s maintenance of strong capital and a sustained improvement in asset quality and reserves. KK has maintained a strong and stable capital position with a Tier 1 ratio of 15.1%, and equity to asset ratio of 13.0% at end-June 2011. Fitch expects KK to maintain its strong capital position due to a relatively moderate asset growth strategy.
The bank’s steady improvement in overall asset quality since 2008 has been supported by favourable domestic economic conditions. NPLs declined further to THB4.68bn at end-June 2011 or 3.8% of total loans (end-2010: THB4.97bn or 4.6%). Loan loss reserves have also strengthened to 92.8% of impaired loans at end-June 2011 (end-2010: 85.1%). Both asset quality and reserves are comparable to industry average.
Higher funding costs and intense competition from larger Thai banks in the auto hire purchase segment has put pressure on KK’s margins, which partly contributed to a 17.6% yoy decline in net profit to THB1.3bn in H111. Fitch expects the rising rate environment be negative for KK in the medium-term, although Fitch has taken comfort in its conservative growth strategy. Longer term, its focus on higher-margin auto lending and its maintenance of asset quality in line with the industry should continue to support profitability
Also, KK has gradually expanded its savings deposit base and aims to increase it further as it continues to expand the branch network. While Fitch views such a strategy as positive, its reliance on large deposits and wholesale funding remains a concern. Loan to deposit ratio including B/Es increased to 106% at end-June 2011 from below 100% in 2008-2009.
The Long-Term National Rating could be upgraded upon evidence of further diversification of its funding profile and strengthening of its loan mix, particularly in terms of reducing potential volatility stemming from the property and other lending portfolios. Enhancing its franchise would also be viewed positively. On the other hand, the Outlook could be revised to Stable in the event the bank adopts a more aggressive risk profile, whether this is through a greater exposure to historically more volatile sectors or through excessive growth. Evidence of heightened liquidity risk would also be negative for the rating.