Bangkok--3 Sep--Fitch Ratings
Fitch Ratings has affirmed Thailand-based TMB Bank Public Company Limited’s (TMB) Long-Term Issuer Default Rating (IDR) at ‘BBB-’ and National Long-Term Rating at ‘A+(tha)’. The Outlook is Stable. A complete list of rating actions is provided at the end of this commentary.
Key Rating Drivers - IDRs, Viability Rating (VR), and National Ratings
TMB's Long-Term IDR and National Ratings are based on its standalone financial strength, which is reflected in its VR. TMB’s VR takes into account the bank’s improving pre-provision profitability and asset quality and Fitch’s expectations for further improvement in these metrics. The ratings also consider TMB’s sound funding and liquidity.
However, TMB’s overall financial profile is moderately weaker than that of its domestic and international peers. Improvements in some of its profitability measures, such as net interest margin (NIM) and pre-provisioning operating profit, have been driven by positive momentum in loan growth, margins, and cost efficiency.
Provisioning costs should normalise with the bank’s improved asset quality, following successful management focus on this issue. Non-performing loans (NPLs) declined to 4.8% of total loans at end-June 2013, from 7.5% at end-2011, due to further NPL sales in Q412 and loan growth. Loan loss reserve (LLR) coverage strengthened to 131.9% from 72.9% over the same period. While TMB’s NPL ratio remains high relative to peers’, its LLR coverage is now in line with the domestic industry average and stronger than that of international peers. This is important given the risk that asset quality may become vulnerable to deterioration in the operating environment following strong credit growth in the industry. Nevertheless, Fitch is of the view that TMB’s risk management has remained firm.
TMB has a sound funding and liquidity profile. The bank has expanded its retail deposit base, which has helped narrow the gap in funding costs with larger domestic banks. The bank’s loans-to-deposits ratio (LDR) rose to 97.1% at end-June 2013 (end-2012: 91.5%) due to an outflow from a large corporate account, but remains in line with that of peers. Furthermore, at end-June 2013 liquid assets were estimated to have covered all short-term borrowings and 24.8% of deposits, which is strong compared with most Thai banks.
TMB’s estimated Fitch Core Capital ratio of 11.5% and Tier 1 ratio of 11.3% at end-June 2013 were comparable to that of domestic and international peers, and should provide some buffer against downside risks.
TMB is the seventh-largest commercial bank in Thailand with assets of THB711.6bn at end-June 2013. The major shareholders are ING Bank NV with 30.1% (including 4.9% of non-voting depository receipts) and the Ministry of Finance at 26.1%.
Rating Sensitivities — IDRs, VR, and National Ratings
An upgrade is unlikely in the near-term, as further improvement in TMB’s overall credit profile is expected to be gradual and has been factored into the ratings. On the other hand, a reversal of the improvement in its financial indicators, increasing risk through excessive loan growth or a higher risk appetite without stronger buffers, or a material increase in loan concentration, could negatively affect the ratings. Any evidence of weakening in TMB’s deposit franchise could also result in a negative rating action.
Key Rating Drivers - Support Rating and Support Rating Floor
The ‘3’ Support Rating and ‘BB+’ Support Rating Floor of TMB reflect a moderate probability of support from the government, in case of need. This view is based on the bank’s systemic importance to the domestic economy, as a medium-sized bank with a reasonable market share of about 5%.
Rating Sensitivities - Support Rating and Support Rating Floor
Any significant changes to the bank’s systemic importance — typically indicated by market share in assets, loans and deposits — could affect the propensity of the government to support the bank, and hence its Support Rating and Support Rating Floor. A multiple-notch change to Thailand’s IDRs could also affect the Support Rating and Support Rating Floor. However, Fitch believes these risks are unlikely to occur in the near term.
An increase in major shareholder ING Bank’s (A+/Negative) interest to above 50% could also affect the bank’s Support Rating, although Fitch believes this is unlikely to occur in the medium-term.
Key Rating Drivers — Subordinated Debt
TMB’s THB subordinated debts are rated one notch below its 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 subordinated debt ratings will be affected by changes to the bank's National Long-Term Rating.
The rating actions on TMB are as follows:
- Long-Term IDR affirmed at 'BBB-'; Outlook Stable
- Short-Term IDR affirmed at 'F3'
- Viability Rating affirmed at 'bbb-'
- Support Rating affirmed at '3'
- Support Rating Floor affirmed at 'BB+'
- National Long-Term rating affirmed at 'A+(tha)'; Outlook Stable
- National Short-Term rating affirmed at 'F1(tha)';
- National subordinated debt rating affirmed at 'A(tha)'