กรุงเทพฯ--3 มิ.ย.--Fitch Ratings
Fitch Ratings has affirmed the ratings of Thailand’s three largest private commercial banks: Bangkok Bank Public Company Limited (BBL), Siam Commercial Bank Public Company Limited (SCB), and Kasikornbank Public Company Limited (KBank).
The three banks’ Long-Term Issuer Default Ratings (IDRs) have been affirmed at ‘BBB+’. At the sametime, the agency has affirmed the banks’ Viability Ratings (VRs) at ‘bbb+’ and National Long-Term Ratings at ‘AA(tha)’. The Outlook is Stable. A full list of rating actions is at the end of this commentary.
Key Rating Drivers - IDRs, VR, National Ratings and Senior Debt
The banks’ ratings are driven by their solid domestic franchises, improved asset quality, strong funding and liquidity, sound capitalisation as well as strong profitability.
The three banks reported strong financial performance in 2012, driven by growth in both net interest income and non-interest income, supported by favourable domestic economy and leading business positions within their respective key markets. Reported asset quality further improved and loan loss reserves coverage strengthened, but this resulted from strong loan growth in a benign operating environment. The ratio of special mention loans plus restructured loans remains moderately high, although migration into non-performing loans is expected to be low. Despite strong loan growth, funding and liquidity remained intact, supported by their solid domestic deposits franchise. Fitch expects profit growth momentum of the three banks to continue based on the current outlook for economic growth and their strong business platforms.
BBL stands out based on its consistently strong capital, loan loss reserves coverage, and liquidity and funding. Profitability reflects a high exposure to large corporates and thus is lower than the other two domestic peers, but compares well with similarly rated banks globally. Its corporate loan focus could see rising loan concentration from financing large domestic M&A activities, but its high capital and loan loss reserve are expected to provide sufficient cushion against this risk, providing growth is at a manageable pace and risk appetite is not increased.
KBank’s capital, historically lower than large peers, has improved from its accumulated earnings and more moderate loan growth than its larger peers. The bank has the lowest loan concentration among the three banks, benefiting from its focus on SME segment. The SME portfolio could be more volatile than large corporates in the event of an economic downturn, but potential risks are mitigated by KBank’s strong buffer in terms of profitability and adequate capital. Nevertheless, Fitch will continue to monitor its growth, noting the increasing system leverage over the past few years.
Of the three large banks, Fitch considers SCB to have the highest risk appetite, evidenced by loan growth well above its peers and the industry and large exposures in some weak-credit corporates. If the bank actively participates in the financing of large M&A deals, there may be concerns for loan concentration, and even pressure on capital levels and higher volatility in asset quality during any economic downturn. Capital, though declining due to high loan growth, remains adequate for now. Moreover, Fitch expects loan growth to moderate and not to pressure capital. Meanwhile, asset quality and loan loss reserves have improved and are in line with large peers. Over the past decade, SCB’s profitability has consistently been above major peers, and should act as a reasonable buffer against moderate asset quality deterioration.
BBL is Thailand’s largest commercial bank by consolidated assets and has the largest international presence among Thai banks. SCB is Thailand’s oldest and second-largest commercial bank. KBANK is Thailand’s fourth-largest commercial bank. BBL has a strong market position in corporate banking. SCB has a leading market position in retail banking, while KBank is the leader in SME banking.
Rating Sensitivities - IDRs, VR, National Ratings and Senior Debt
Positive rating action could be considered in the event of a sustained improvement in the domestic operating environment and further strengthening in the banks’ overall financial profile, absent any increase in risk tolerance, or increase in exposure to the sovereign.
On the other hand, a downgrade may result from an increasing risk of significant deterioration in asset quality that leads to an erosion of profitability or capital. Examples include increasing risk appetite through rising loan concentrations and/or excessive loan growth in the absence of further strengthening buffers through higher profitability and capital. This is most likely a risk for SCB (higher growth and loan concentration) and BBL (higher loan concentration) than KBANK. For SCB, weakening cushion for risks associated with its aggressive growth, i.e. further declining capital, and/or weakening loan loss reserves coverage, could be negative to its ratings.
Key Rating Drivers - Support Rating and Support Rating Floor
Support Rating and Support Rating Floor of the three banks are based on their systemic importance to the domestic economy due to their sizable market share of 15%-20% in terms of assets and deposits.
Rating Sensitivities - Support Rating and Support Rating Floor
A significant reduction in the banks’ market share could result in a downgrade in Support Rating and Support Rating Floor. However, this is unlikely in the medium term. A change in the sovereign ratings could also lead to a change in the Support Rating and Support Rating Floor.
Key Rating Drivers - Subordinated debt
BBL’s USD subordinated debt is rated one notch below its IDR. The three banks’ THB subordinated debts are rated one notch below their National Long-Term Ratings. This is to reflect their subordination in the capital structure and is in line with Fitch's approach to rating such subordinated debt instruments of financial institutions.
Rating Sensitivities - Subordinated debt
The three banks’ subordinated debt ratings will be affected by changes to the banks’ IDR/ National Long-Term Ratings.
The list of affirmed ratings is as follows:
BBL’s ratings
Long-Term IDR affirmed at ‘BBB+’; Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bbb+’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-’
National Long-Term Rating affirmed at ‘AA(tha)’; Outlook Stable
National Short-Term Rating affirmed at ‘F1+(tha)’
Long-term foreign currency senior unsecured notes affirmed at ‘BBB+’
Long-term foreign currency subordinated debt affirmed at ‘BBB’
National Long-term subordinated debt affirmed at ‘AA-(tha)’
SCB’s ratings
Long-Term IDR affirmed at ‘BBB+’; Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bbb+’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-‘
National Long-term rating affirmed at ‘AA(tha)’; Outlook Stable
National Short-Term rating affirmed at ‘F1+(tha)’
Long-term foreign currency senior unsecured debt affirmed at ‘BBB+’
National Short-term senior unsecured debt programme affirmed at ‘F1+(tha)’
National Long-term subordinated debt affirmed at ‘AA-(tha)’
KBANK’s ratings
Long-Term Foreign Currency IDR affirmed at ‘BBB+’; Outlook Stable
Short-Term Foreign Currency IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bbb+’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB-’
National Long-Term Rating affirmed at ‘AA(tha)’; Outlook Stable
National Short-Term Rating affirmed at ‘F1+(tha)’
Long-term foreign currency senior unsecured debt affirmed at ‘BBB+’
National Short-term senior unsecured debt rating affirmed at ‘F1+(tha)’
National Long-term subordinated debt rating affirmed at ‘AA-(tha)’