Bangkok--20 Aug--Fitch Ratings
Fitch Ratings has affirmed TMB Bank Public Company Limited’s (TMB) Long-Term Issuer Default Rating (IDR) at ‘BBB-’ and Long-Term National Rating at ‘A+(tha)’. The Outlook is Stable.
A full list of rating actions is included at the end of this commentary.
KEY RATING DRIVERS - VR, IDRs, National Ratings
TMB’s IDRs and National Ratings are based on its standalone financial strength, which is reflected in its Viability Rating (VR) of ‘bbb-’. The ratings reflect its sound franchise as a mid-sized bank in Thailand (with the seventh-largest share of the loan and deposit market) in a challenging operating environment. The ratings also take into account the improvement in recent years in TMB’s overall financial performance, particularly in asset quality.
The bank’s NPL ratio declined to 4.5% while reserve coverage increased to 140% at end-2013 from 9.9% and 57% respectively at end-2010. The bank sold THB3.3bn of NPLs in 2Q14 and the NPL ratio has dropped further to 4.1% at end-June 2014. Nevertheless, the uncertain and fragile operating environment remains a challenge - around 40% of TMB’s loan portfolio is extended to small and medium enterprises (SMEs), which may be more vulnerable in an economic downturn.
In 2013, TMB had return on assets (ROA) of 0.8% and return on equity (ROE) of 9.7%, which were lower than the local peer average (ROA: 1.3%, ROE: 13.6%). Fitch expects TMB’s loan growth of 2% in 1H14 to pick up in 2H14, if the operating environment remains favourable. We expect TMB’s profitability to steadily improve in the next two to three years, barring any unexpected negative shocks, as it focuses on SMEs rather than corporates.
Fitch believes TMB’s capitalisation is adequate and comparable to peers’ - its core Tier 1 capital was 9.9% and Fitch Core Capital was 11.4% at end-2013. This would provide some buffer to potential credit loss. TMB’s funding and liquidity profile are also sound and compare favourably with its peers’. The bank has also increased the proportion of low-cost deposits in its overall deposit base.
RATING SENSITIVITIES - VR, IDRs, National Ratings
A material reversal of recent gains in key financial measures, such as asset quality and earnings, and a material increase in risk appetite, if not offset by strengthened capital and profitability buffers, could lead to a downgrade. An upgrade is unlikely in the near term because further improvement in TMB's overall credit profile is likely to be gradual and this has been factored into the ratings.
KEY RATING DRIVERS - Support Rating and Support Rating Floor
The Support Rating and Support Rating Floor reflect Fitch’s view that there is a moderate probability of support from the Thai state (BBB+/Stable), if necessary. TMB is systemically important within the domestic financial sector. It is the seventh-largest commercial bank with a 4.5% share of loans and 4.8% share of deposits in the market.
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 are unlikely to occur in the near term.
The full list of rating actions follows:
TMB
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
Short-Term IDR affirmed at 'F3'
USD3.0bn senior unsecured medium-term note programme affirmed at ‘BBB-’
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)'