Bangkok--1 Nov--Fitch Ratings
Fitch Ratings has affirmed Krung Thai Bank Public Company Limited’s (KTB) Long-Term Issuer Default Rating (IDR) at ‘BBB’ and National Long-Term Rating of ‘AA+(tha)’. The Outlooks are Stable. A full rating breakdown is provided below.
KTB’s IDRs, Support Rating, Support Rating Floor, and National Ratings reflect Fitch’s expectation of a high probability of support from the government, if needed. This is based on the government’s majority ownership and close control of, and strong historical support for the bank, as well as the bank’s systemic importance to the Thai financial system and economy. In addition, Fitch sees KTB’s partial role in supporting government policies as reinforcing the bank’s stronger relationship with the state compared with other commercial banks.
The state’s strong support was evident in the full participation of The Bank of Thailand’s Financial Institutions Development Fund in KTB’s capital increase in October 2012, maintaining its majority stake of 55%. KTB successfully raised capital of about THB35bn via right offerings to support business expansion.
A change in Thailand’s ratings (‘BBB’/Stable) could affect KTB’s IDRs, Support Rating Floor and National Ratings. However, KTB’s IDRs could de-couple from the sovereign were the latter to be upgraded to the ‘A’ rating category - which is observed in many higher-rated jurisdictions where systemically important institutions (including those with partial policy functions) are less than 100%-state-owned. This is because of potentially less reliance on commercial institutions to support government policies.
KTB’s Viability Rating (VR) of ‘bbb-’ reflects its strong domestic franchise and strengthened financial position although non-performing loans (NPLs) and loan loss reserves (LLR) remain weak relative to peers. Profitability continued to improve in 2011 and H112, supported mainly by strong loan growth (in line with the industry) and higher fee income. With continued strong loan growth momentum, Fitch expects KTB to report solid performance in 2012 although there could be additional pressure on KTB’s provisioning cost partly due to its low LLR.
NPLs extended their improving trend, declining as a share of total loans to 4.2% at end June-2012 (end-2011: 4.5%, end-2010: 6.1%), due to loan write-offs. The bank’s LLR also improved to 70% at end-June 2012 (end-2011: 69%, end-2010: 59%). Nevertheless, KTB’s NPL and LLR remain weak relative to its peers. While there is no sign of asset quality weakening significantly, KTB’s strong loan expansion over the past two years plus the weak global economic environment as well as its exposure to highly cyclical industries may increase asset quality pressure in the medium term.
KTB’s funding and liquidity have remained stable, underpinned by it strong deposit franchises in Thailand, due to its extensive branch network as well as close relationship with the state. Including new capital, KTB’s Tier 1 capital ratio should increase from 7.9% at end-June 2012, to about 10%, in line with its major domestic peers.
Significant and sustained improvement in KTB’s profitability, asset quality and maintenance of strong capital could lead to positive rating action on the VR. Conversely, substantial deterioration in profitability, or a reversal in the trend for asset quality and capital — including from a significant increase in lower-quality policy type loans — could lead to a downgrade of VR. However, the bank’s ‘BBB’ IDR may remain unaffected because it is currently at the Support Rating Floor.
At end-June 2012, KTB was Thailand’s second-largest commercial bank by consolidated assets with an 18% market share. Corporate loans accounted for the largest portion of the bank’s loan portfolio, followed by retail and SME lending. As a state-owned bank, KTB also has large exposures to loans to government and state enterprises. KTB operates 1,046 domestic branches and employs close to 20,000 staff.
KTB’s ratings have been affirmed as follows:
- Long-Term IDR at ‘BBB’; Outlook Stable
- Short-Term IDR at ‘F3’
- Viability Rating at ‘bbb-’
- Support Rating at ‘2’
- Support Rating Floor at ‘BBB’
- Foreign currency offshore hybrid Tier 1 securities at ‘B’
- National Long-Term rating at ‘AA+(tha)’; Outlook Stable
- National Short-Term rating at ‘F1+(tha)’
- National subordinated debt rating at ‘AA(tha)’
- National rating domestic hybrid Tier 1 securities at ‘BBB(tha)’