Bangkok--25 Nov--Fitch Ratings
Fitch Ratings has affirmed United Overseas Bank (Thai) Public Company Limited's (UOB Thai) Long-term Foreign-Currency IDR (LTFC IDR) at 'BBB+' and National Long-Term Rating at 'AAA(tha)'. The Outlook is Stable. A full rating list is provided at the end of this commentary.
UOB Thai's ratings are primarily based on Singapore's United Overseas Bank (UOB, 'AA-'/Stable) remaining the controlling shareholder. Given UOB's reputation and resources, Fitch believes that there would be a high probability of shareholder support, if required. The National Rating reflects the agency's view that Thailand's restriction on the foreign ownership limit at 49% is unlikely to prevent a capitalisation by UOB, if required, to support its Thai subsidiary.
A negative rating action on the support-driven ratings could result from a lowering in UOB's shareholding or propensity of support provided to UOB Thai. Also, UOB Thai's LTFC IDR is capped by the sovereign's Country Ceiling, hence a change in Thailand's Country Ceiling would affect the former's rating.
The bank's Viability Rating (VR) takes into consideration its strong capitalisation. While Fitch believes UOB Thai could utilise liquidity support, if required from its parent, it remains self-sufficient. However, the bank's funding profile has weakened considerably from 2010, as reflected by a rising loan-to-deposit ratio, due to deposits contraction and an increasing reliance on non-deposit funds (such as bills of exchange). This is likely reflective of UOB Thai's moderate franchise, which its VR has taken into account.
Fitch sees no near-term momentum for a positive rating action on the VR, though continuous meaningful strengthening of its franchise without higher risk tolerance, while improving asset quality and reserves would support its VR. A negative rating action may occur from a further weakening of its funding profile, and/or an aggressive asset growth strategy that compromises its capital position and future asset quality.
The bank's net profit in H111 declined yoy due mainly to a lower net interest margin, moderate loan growth and higher operating expenses. As with other domestic peers, in Q411 and 2012, Fitch expects UOB Thai to see a decline in revenue due to flood relief programmes provided to affected customers.
UOB Thai maintains a strong capital position with Tier 1 ratio of 16.9% at end-June 2011, although this is down from 19.5% at end-2009 due to a more aggressive growth strategy; longer term, the bank targets a Tier 1 ratio of 14%-15%, which Fitch notes would still be higher than most domestic and international peers. While asset quality has steadily improved with NPLs declining to THB7.3bn, or 4.3% of total loans at end-June 2011 (end-2010: THB8.6bn or 5.3%), it remains weaker than major domestic banks and UOB's banking subsidiaries in Asia.
UOB Thai's ratings have been affirmed as follows:
- Long-Term Foreign Currency IDR at 'BBB+'; Stable Outlook;
- Short-Term Foreign Currency IDR at 'F2';
- Viability Rating at 'bbb-';
- Individual Rating at 'C';
- Support Rating at '2';
- National Long-term Rating at 'AAA(tha)'; Stable Outlook; and
- National Short-term Rating at 'F1+(tha)'.