Fitch Affirms UOB (Thai) at ‘BBB+’; Downgrades Viability Rating to ‘bb+’

ข่าวเศรษฐกิจ Wednesday May 2, 2012 16:24 —PRESS RELEASE LOCAL

Bangkok--2 May--Fitch Ratings Fitch Ratings has affirmed United Overseas Bank (Thai) Public Company Limited’s (UOB Thai) Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) at ‘BBB+’ and downgraded the bank’s Viability Rating (VR) to ‘bb+’ from ‘bbb-’. The National Long-Term Rating has been affirmed at ‘AAA(tha)’. The Outlook is Stable. A full rating list is provided below. 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 foreign ownership limit of 49% is unlikely to prevent a capital injection by UOB if required, particularly in times of stress, to support its Thai subsidiary. The downgrade reflects UOB Thai’s persistently lower profitability and asset quality, relative to similarly rated peers. The VR also reflects its continuing weak funding profile due to a modest franchise network. While Fitch believes UOB Thai could utilise liquidity support from its parent, if required, the parent intends for it to remain self-sufficient. Fitch views that it would take at least one to two years for UOB Thai to improve both profitability and asset quality and longer to improve its deposit franchise, especially in light of intense competition for deposits in Thailand. A negative rating action on the support-driven ratings could result if there is a reduction in UOB’s shareholding or its propensity to support UOB Thai. As UOB Thai’s LTFC IDR is capped by the sovereign’s Country Ceiling, a change in Thailand’s Country Ceiling would affect the former’s rating. Fitch sees no near-term momentum for positive rating action on the VR. However, continuous strengthening of the bank’s franchise without increasing its risk tolerance, as well as improving its asset quality and reserves would benefit its VR. UOB Thai maintains a strong capital position with a Tier 1 ratio of 15.54% at end-December 2011, although this was down from 17.78% at end-2010 due to a more aggressive growth strategy. Over the long term, the bank targets a Tier 1 ratio of 14%-15%, which Fitch notes would still be higher than most domestic and international peers, but appropriate for the bank’s operating environment and risk profile. While asset quality has steadily improved with non-performing loans declining to THB7.5bn, or 3.96% of total loans at end-December 2011 (end-2010: THB8.6bn or 5.3%), it remains weaker than major domestic banks and UOB’s other 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 downgraded to ‘bb+’ from ‘bbb-’ - Support Rating at ‘2’ - National Long-Term Rating at ‘AAA(tha)’; Stable Outlook - National Short-term Rating at ‘F1+(tha)’.

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