Bangkok--7 Mar--Fitch Ratings
Fitch Ratings has assigned Krung Thai Bank Public Company Limited’s (KTB: BBB/Stable) USD2.5bn euro medium term note (EMTN) programme a senior unsecured rating of ‘BBB’.
Fitch has also assigned an expected ‘BBB(EXP)’ rating to KTB’s proposed unsecured senior notes to be issued under this EMTN programme. The notes will be issued through KTB’s Cayman Island branch and the proceeds will be used for the bank’s general corporate purposes. The final rating on the proposed notes is contingent upon the receipt of final documents conforming to the information already received.
Fitch stresses that there is no assurance that notes issued in the future under the programme will be rated the same as the programme rating, as the programme also permits the issuance of subordinated notes.
Rating Action Rationale
The notes are rated at the same level as KTB's Long-term Foreign Currency Issuer Default Rating (LTFC IDR) of 'BBB' as they represent unsecured and unsubordinated obligations of the bank.
KTB’s 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 on 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.
At end-2012, KTB was Thailand’s second-largest commercial bank by assets with about 18% market share through its 1,091 domestic branches. 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.
In 2012, KTB showed an improvement in its performance and asset quality, while maintaining a sound capital ratio. Return on assets of 1.1% (2011: 0.9%) in 2012 was driven by growth in loans (7% yoy) and fee income (21% yoy). Over the same period, its non-performing loan (NPL) ratio improved to 3.9% (2011: 4.5%), while loan loss reserve coverage rose to 92.7% (2011: 69%). KTB’s Tier 1 capital ratio was at 10.2% at end-2012, in line with that of major domestic peers.
Rating Drivers and Sensitivities
A change in Thailand's ratings (BBB/Stable) could have a similar effect on KTB's LTFC IDR. However, KTB's IDRs could de-couple from the sovereign were the latter to be upgraded to the 'A' rating category, as has been 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.
Contact:
Primary Analyst
Ambreesh Srivastava
Senior Director
Fitch Ratings Singapore PTE Ltd
6 Temasek Boulevard
#35-05 Suntec Tower Four
Singapore 038986
Secondary Analyst
Piyamas Chaihetphon, CFA, CPA
Associate Director
+662 655 4749
Committee Chairperson
Jonathan Cornish
Managing Director
+852 2263 9901