Bangkok--30 Aug--Fitch Ratings
Fitch Ratings has affirmed Bank of Ayudhya Public Company Limited’s (BAY) ratings, including its Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘BBB’ and National Long-Term Rating at ‘AA-(tha)’. The Outlook is Stable. The full list of rating actions is included at the end of this release.
The ratings and Stable Outlook are based on BAY’s robust performance, sufficiently strong capital position for its risk profile and, as expected, continued improvement of asset quality. The ratings also consider BAY’s greater use of wholesale funding, including bills of exchange (BE), relative to similarly rated peers. In light of BAY’s 8% share of system assets, loans and deposits, Fitch believes there is a moderate probability of government support, in case of need.
BAY’s net profit in H111 grew a strong 38% to THB5.8bn, driven by a high net interest margin stemming from its large exposure to higher-yielding retail lending, well-managed funding costs and lower provisioning costs. Return on average assets increased to 1.32% in H111 (2010: 1.07%) and should continue to improve with lower and more stable provisioning. BAY’s retail lending increased significantly to over 40% of total loans from 30%, after acquiring assets from the Thai operating units of General Electric Capital Corporation Inc. and American International Group in 2008-2009.
The bank’s asset quality has improved over the past two to three years despite a volatile operating environment. Non-performing loans (NPLs) fell to THB36bn (5.35% of total loans) at end-June 2011 (end-2007: THB72bn; 15.87%), aided by active loan restructuring, sales and write-offs of NPLs, and tighter credit standards. The bank has plans to sell further NPLs in H211. Loan loss coverage also strengthened to 92.6% at end-June 2011 from 88.7% at end-2010, in line with the industry average.
Funding and liquidity profile remains a risk. BAY’s deposits are lower than those of the major banks, accounting for 72% of total funding at end-June 2011 due to higher long-term wholesale funding to better match its asset profile. Its loan/deposit ratio (including BE) of 102% at end-June 2011, although lower than 108% at end-2010, remains high compared with an average of 91% for the country’s top four banks. Liquid assets have declined to about 16% of deposits, money market and short-term funding at end-June 2011, which is lower than an average of about 20% for major Thai banks.
A large recapitalisation in 2007 and continuous internal capital accretion due to profitable operations have helped BAY report one of the highest capital positions among Thai banks, which Fitch views as appropriate for its risk profile. Its Tier 1 capital and equity/assets ratios of 12.16% and 11% respectively at end-June 2011 have remained stable despite ongoing acquisitions and organic growth in the past three years. Moreover, Fitch would expect its capital position to hold up even should the operating environment deteriorates moderately.
Positive rating action may result from significant improvement in BAY’s deposit franchise to a level closer to its major domestic peers, as measured by the share of retail deposits of total funding. Maintaining its strong capital position and sustainable profitability may also benefit the ratings. Any sharp increase in liquidity risk, including heavy reliance on wholesale funding, risk of significant deterioration in asset quality due to aggressive asset growth and/or material weakening of capital position may lead to negative rating action.
The debt ratings are consistent with Fitch’s relevant criteria for rating such instruments which are performing.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank. GECIH, a subsidiary of General Electric Capital Corporation Inc., now holds 33% stake, while the Ratanarak Group holds 25%. BAY also has stakes in affiliated securities broking, fund management and insurance broking.
Bank of Ayudhya Public Company Limited’s ratings
- Long-Term Foreign Currency IDR affirmed at 'BBB'; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at ‘F3’
- Individual Rating affirmed at ‘C’
- Viability Rating affirmed at ‘bbb’
- Support Rating affirmed at ‘3’
- Support Rating Floor affirmed at ‘BB+’
- Long-Term National Rating affirmed at ‘AA-(tha)’; Outlook Stable
- Short-Term National Rating affirmed at ‘F1+(tha)’
- National Long-term senior unsecured debt affirmed at ‘AA-(tha)’
- National Long-term subordinated debt affirmed at ‘A+(tha)’
Contact:
Primary Analyst
Narumol Charnchanavivat
Director
+662 655 4763
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Wasant Polcharoen
Director
+662 655 4758
Committee Chairperson
Jonathan Cornish
Managing Director
+852 2263 9901