Bangkok--27 Apr--Fitch Ratings
Fitch Ratings has affirmed CIMB Thai Bank Public Company Limited’s (CIMBT) Long-Term Foreign-Currency IDR at ‘BBB’ and its National Long-Term Rating at ‘AA-(tha)’. The Outlook is Stable. A full rating breakdown is provided below.
CIMBT’s ratings are underpinned by Fitch’s view that there is a high probability of support, if required, from its parent, CIMB Bank Berhad (CIMB; ‘BBB+’/Stable). The Support Rating of ‘2’ and the one-notch differential between the LT IDRs of CIMB and CIMBT are supported by the strong integration and increasing strategic importance of CIMBT to the group. CIMBT’s recent plan to increase capital through a rights offering also illustrates solid capital support from the parent.
CIMBT’s Viability Rating of ‘bb-’ takes into account the bank’s still modest, albeit improved, franchise, weak capital position, moderately weak asset quality, as well as deteriorating funding and liquidity. Liquidity risk has risen as asset maturities have lengthened and short-term borrowings (mostly bills of exchange) have taken on a greater share of new funding. Rapid expansion of off-balance-sheet derivative commitments also represents a growing drain on cash. In the event of liquidty strains, Fitch expects CIMBT would receive funding assistance from its parent.
Notwithstanding CIMBT’s planned THB4.89bn recapitalisation this year Fitch notes that capitalisation will still remain weaker than similarly-rated peers. CIMB has agreed to provide continued capital support to CIMBT as necessary through to 2018, after which CIMB will not be allowed by the Bank of Thailand (BoT) to participate in any rights issue. Profitability, although improving, continues to lag asset growth, and will remain a drag on capital until earnings strengthen further.
Any changes in CIMB’s ability and/or propensity to support CIMBT (including increasing or lowering its stake) could affect CIMBT’s Long-Term ratings. As this is not Fitch’s expectation, CIMBT’s Outlook is Stable, consistent with its parent’s. CIMBT’s VR could be downgraded if liquidity continues to deteriorate and/or aggressive expansion compromises credit quality and solvency. A positive rating action on its VR is dependent on sustained improvement in various credit metrics, including asset quality, funding and liquidity profile and capital position through profit accumulation. However, this remains a remote prospect over the medium-term.
CIMBT continued to report strong performance with net profit of THB346mbn for Q112, up 21% yoy, driven by a 19% increase in total revenue. Its cost/income ratio rose to 73% in Q112 compared with 68% in 2011. Net interest margin declined as a result of higher funding cost due to intense competition for retail funding in the domestic market. Capitalisation weakened with Tier 1 ratio of 7.65% at end-2011, down from 9.04% at end-2010 due to strong loan growth of 27% yoy, driven mainly by SME loans, although loans contracted moderately quarter-on-quarter in Q112.
CIMBT’s Upper Tier 2 debt is currently rated two notches below CIMBT’s National Long-term Rating. The coupon deferral trigger based on profit test is optional, and CIMBT can still pay a coupon even if it reports net losses in the year without requiring approval from BoT. The parent has also indicated a willingness to provide financial support for coupon payment, if necessary. Mandatory coupon deferral would be triggered if the bank’s Total CAR were to fall below 0% or the BoT were to request an increase in capital, both of which Fitch views as low probability scenarios.
CIMBT, formerly Bank Thai, was formed in 1998 as a result of a government-initiated merger of several defunct financial institutions. It is one of the smallest banks in Thailand, with asset and deposits share of 1.4% each at end-December 2011. CIMB has a 93.2% stake in CIMBT.
CIMBT’s ratings:
- Long-Term Foreign Currency IDR affirmed at ‘BBB’; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at ‘F3’
- Viability Rating affirmed at ‘bb-’
- Support Rating affirmed at ‘2’
- National Long-term rating affirmed at ‘AA-(tha)’; Outlook Stable
- National Short-term rating affirmed at ‘F1+(tha)’
- Upper tier 2 debt affirmed at ‘A(tha)’
- Lower tier 2 debt affirmed at ‘A+(tha)’