Bangkok--15 Sep--Moody's Investors
Moody's Investors Service has today affirmed the following ratings of Kasikornbank Public Company Limited
(KBank): standalone D+ bank financial strength rating (BFSR), which maps to Baa3 on the long-term scale; Baa1/Prime-2 long-term foreign currency deposit; and A3/Prime-2 foreign currency senior debt.
In addition, Moody's has affirmed the foreign currency subordinated debt of Baa1.
All ratings have a stable outlook.
Moody's affirmation of KBank's ratings is based on the bank's audited financial statements for 2010 and 1H 2011, as prepared under local GAAP.
RATINGS RATIONALE
KBank's ratings remain constrained by (i) weaker Tier I capital ratios when compared to its global and local peers; and (ii) relatively high single-borrower concentrations and high -- but decreasing -- efficiency ratios, again when compared to its peers.
Moreover, KBank has a lower level of capitalization when compared to its local competitors, Bangkok Bank Public Company Limited (Baa1 stable,
C-/Baa2 stable; Thailand's largest bank) and Siam Commercial Bank Public Company Limited (Baa1 stable, C-/Baa2 stable; Thailand's fourth-largest bank). Its Tier I stood at 9.2% in 1H 2011. As a result of its relatively weaker capital cushion, KBank's solvency is less resilient than these higher rated peers to stressed conditions.
The bank's loan portfolio has a high degree of single-borrower concentration, relative to core capital and earnings. This is on par with its large Thai peers, but considered high on a global context. Such concentration exposes earnings to volatility, and may affect asset quality in a downturn. Its top 20 loan exposures range between 100% and 200% of its Tier I capital.
On the other hand, Moody's observes that the ratings are underpinned by
(i) the size of its franchise as the third largest in Thailand, with a 15% share of assets, and 16% of loans and deposits; (ii) the bank's stable funding and liquidity profile; and (iii) its steady overall fundamentals, which remain established within its "D+" regional peer group.
On another positive note, KBank's asset quality has continued to improve over recent years, better than most of its local peers, though still weak when compared to global peers. Non-performing loans (NPLs, defined as loans 90+ days overdue) declined to Bt32.3 billion (2.8% of gross loans) at end-June 2011 from Bt 37.3 billion (4%) at end-2009, due to active debt management and minimal formation of new NPLs. Its loan-loss reserve coverage ratio increased to 120% of gross loans at 1H 2011 from 110% at end-2010.
On a pre-provision basis, earnings generation compares favorably to other similar-sized Thai banks and its "D+" rated peers. Pre-provision profits were 3.5% of average risk-weighted assets for 2010.
As with most other Thai banks, KBank's loan-to-deposit ratio is on the high side, relative to other Asian banks, as evidenced by a 96% loan-to-deposit ratio at the end of 1H2011 (98% at end-2010). But, its sizable and stable core deposit base accounted for nearly 89% of its funding at end- 2010, with a profile mainly in local currency.
An upgrade of its stand-alone rating would require that (i) its financial performance in the next 18 months is consistent and solid; (ii) its Tier I ratio rises above 11%; and/or (iii) its cost efficiency ratio falls below 48% (excluding insurance income and expense). Any upgrade of the deposit and debt ratings would require an upgrading of Thai's sovereign ratings.
On the other hand, the stable outlook on the ratings could change to negative if the (i) difficult operating environment in Thailand worsens and KBank'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%; (iii) the loan-to-deposit rises above 100%; and/or (iv) the bank's capital adequacy declines significantly, such that its Tier I ratio falls below 8%.
PRINCIPAL METHODOLOGIES
The 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, KBank reported total assets ofBt1,672 billion (US$56 billion) as of end-June 2011.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available.
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Karolyn C. Seet
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Financial Institutions Group
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