Bangkok--22 Jan--Fitch Ratings
Fitch Ratings has published the Small and Medium Enterprise Development Bank of Thailand’s (SME Bank) Long-Term Issuer Default Rating (IDR) of ‘BBB+’ with Stable Outlook. Fitch has also affirmed SME Bank’s National Long-Term Rating at ‘AAA(tha)’.
A full list of rating actions is provided below.
KEY RATING DRIVERS
SME Bank’s Long-Term IDR is at the same level as the Thai sovereign because of its strong linkages to the government, which leads Fitch to believe there would be a high probability of state support in the event of need. The ratings are underpinned by the bank’s strategic role in supporting small businesses, its legal status as one of Thailand’s specialized financial institutions, near-full ownership by the Thai Ministry of Finance, and a history of state support.
SME Bank reported losses in 2012 after its non-performing loans ratio doubled to some 30% of loans due to underwriting lapses. In response, the government injected capital in 2Q13, which helped the bank’s total capital adequacy ratio to improve to 5.28% by September 2013 (from 3.28% at end-2012). SME Bank’s rehabilitation is being overseen by the Ministry of Finance, which is evidence of continued close state control.
RATING SENSITIVITIES
SME Bank’s Long-Term IDR, Short-Term IDR and Support Rating Floor (SRF) would generally move in tandem with changes in the Thai sovereign rating. However, the Support Rating would not necessarily be impacted by a sovereign rating downgrade because the minimum SRF associated with a Support Rating of ‘2’ is ‘BBB-’. SME Bank’s National Ratings would likely not be affected by a change in the Thai sovereign rating, because the sovereign would still have the lowest default risk within the country.
SME Bank’s ratings, both on the international and national scales, would be negatively affected by any perceived change in the propensity or ability of the Thai government to support the bank. For example, this may include a refusal to provide additional capital or funding support, a material reduction in direct state ownership, any reduction in supervisory oversight, or a significant change in legal status. However, in Fitch’s view, such adverse developments are unlikely in the near term due to the bank’s key policy role.
The ratings actions are as follows:
Long-Term IDR: published at ‘BBB+’; Stable Outlook
Short-Term IDR: published at ‘F2’
Support Rating: published at ‘2’
Support Rating Floor: published at ‘BBB+’
National Long-Term Rating: affirmed at ‘AAA(tha)’; Stable Outlook
National Short-Term Rating: affirmed at ‘F1+(tha)’