Bangkok--31 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has upgraded SCB Securities Company Limited's (SCBS) National Long-Term Rating to 'AA-(tha)' from 'A+(tha)'. The Outlook is Stable. At the same time, the agency has affirmed SCBS's National Short-Term Rating at 'F1+(tha)'. The upgrade reflects Fitch's reassessment of support for SCBS from its parent - Siam Commercial Bank Public Company Limited (SCB, 'AA(tha)'/Stable), which owns 100% of SCBS. The company is strategically important to SCB as an integral part of the bank's universal banking platform and is positioned as the brokerage and equity capital market arm of the group. SCB also provides credit lines to SCBS. SCBS is notched a level below its parent's rating to reflect the former's small size and limited profit contribution to the group.
Given their close links, any changes in SCB's ratings are likely to result in a similar rating action for SCBS. A material reduction in SCB's ownership in or a significant change in the propensity of support for SCBS could result in a wider notching differential. Conversely, a material increase in SCBS's importance to the group, indicated by a significant increase in size, revenues, and profit contribution could result in a narrower differential. However, Fitch views both scenarios as remote prospects in the medium- to long-term.
SCBS's performance in 2012 is likely to weaken as competition increases due to the liberalisation of brokerage commission since early 2012. The company plans to mitigate the impact by increasing its trading volume through SCB's retail client base and diversifying into new businesses, such as structured products and low-risk proprietary trading. Nevertheless, SCBS's performance will remain volatile due to its dependency on stock market conditions.
The company's funding and liquidity risks should remain low because SCBS mainly relies on equity as its major source of funding and had no borrowings at end-2011. SCBS has also been maintaining its net liquid capital ratio - used by the regulator to monitor securities firms' liquidity - above 100%, much higher than the regulatory requirement of 7%. SCBS's capital is solid at 66.7% of total assets at end-2011 and Fitch believes the company's current capital level should be sufficient to support business expansion over the medium-term.
Established in 1995, SCBS is the wholly-owned securities arm of SCB. SCBS is a mid-sized brokerage firm, ranked 19th out of 32 securities firms in Thailand with a market share of 2.4% at end-H112.