Bangkok--1 Sep--Moody's Investors
Moody's Investors Service has upgraded the standalone bank financial strength rating (BFSR) of Bangkok Bank Public Company Limited (BBL) to C- from D+.
The C- BFSR now maps to a Baa2 on Moody's long-term rating scale.
The outlook on the BFSR is stable.
At the same time, Moody's has affirmed BBL's Baa1 long-term foreign currency deposit and A3 foreign currency senior debt ratings.
Moody's has also affirmed the bank's Prime-2 short-term deposit and debt ratings and Baa1 subordinate debt rating.
RATINGS RATIONALE
"The upgrade of BBL's BFSR reflects its track record of a solid financial performance, and Moody's expectation that its financial indicators will remain satisfactory in the medium term. The upgrade also demonstrates BBL's resilience to Thailand's political uncertainties and the global financial crisis over the past five years, highlighting the sustainability of its business model," says Karolyn Seet, a Moody's Assistant Vice-President and lead analyst for the bank.
"In addition, its sound financial metrics -- including an adequate capital cushion and improving profitability metrics -- enhance its ratings," adds Seet.
Other factors underpinning BBL's ratings include (i) its solid corporate governance, credit underwriting standards and risk management procedures,
(ii) its leading franchise in its home market, where it holds leading market shares of 19%, 18% and 20% in assets, loans and deposits, respectively, and (iii) its steady overall fundamentals, which remain established within the "C-" regional peer group.
Moody's notes that BBL's regulatory and economic capitalization levels have improved, and that the bank now benefits from an enhanced level of loss absorption capacity, which underpins its C- BFSR and is sufficient to absorb expected medium-term credit losses under Moody's stress-test scenarios. BBL's Tier 1 improved to 13.2% -- according to its unaudited 2Q 2011 interim statement, and from 11.2% at end-2008 -- as a result of retained earnings.
Moody's also notes that BBL has maintained a healthy financial performance over the past three years, as it generates a stable flow of interest and commission income -- sufficient to cover operating expenses -- and also shows solid loan-loss provision levels.
On a pre-provision basis, BBL's earnings generation compares favorably to similarly-rated Thai banks and its "C-" rated peers. The bank's pre-provision profits were 3.4% of average risk-weighted assets for 2010.
Looking ahead, however, the pricing of, and intense competition for funding will constrain the growth and profitability of the broader Thai banking sector, including BBL.
Against this backdrop, Moody's views BBL's risk appetite as relatively conservative, with a focus mainly on select borrowers with satisfactory credit standings. BBL maintains moderate single-borrower concentrations in its loan portfolio. But, the existing single-name and industry concentrations in its loan book also render the bank's performance particularly vulnerable to the performance of its largest borrowers. Its top 20 loan exposures range between 80% and 100% of its Tier I capital.
Moody's notes that BBL's asset quality has continued to improve over recent years. Non-performing loans (NPLs, defined as loans 90+ daysoverdue) decreased to 3.3% of its portfolio at end-June 2011 from 3.6% at end-2010, and from 4.9% at end-2009.
Although BBL's liquidity position is tightening -- as evidenced by a 92% loan-to-deposit ratio at the end of 1H2011 (84% at end-2009) -- its liquidity position is supported by a healthy level of liquid assets, accounting for more than 30% of its total assets. Its sizable deposit base accounted for nearly 84% of its funding at end-2010.
The stable rating outlook incorporates Moody's opinion that even if BBL's credit costs exceed Moody's expectations, its capital position should not deteriorate dramatically. The stable outlook should withstand expected pressures on asset quality and the expected effects of higher credit charges.
BBL's ratings have limited upside potential in the short term.
Additionally, a decline in the concentration levels in the bank's loan book (such that its top 20 exposures fall below 80% of Tier I capital) would improve its risk profile. Such a development would reduce the vulnerability of the bank's profitability and capitalization to a sharp asset quality correction and a loss of major customers, including those related to the bank.
On the other hand, the stable outlook on the ratings could change to negative if the (i) difficult operating environment in Thailand worsens and BBL's asset quality deteriorates in coming months; (ii) profitability declines, such that pre-provision profits -- as a percentage of risk-weighted assets -- fall below 2.5%; and/or (iii) the bank's capital adequacy or liquidity declines significantly, such that Tier 1 falls below 10% and loan-to-deposit ratios exceed 100%.
PRINCIPAL METHODOLOGIES
The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Headquartered in Bangkok, Thailand, BBL reported unaudited total assets of Bt2,012 billion (US$67 billion) as of end-June 2011.