Bangkok--26 May--Fitch Ratings
Fitch Ratings has today affirmed the ratings of Thailand’s four largest commercial banks. The Long-Term Issuer Default Ratings (IDRs) on Bangkok Bank Public Company Limited (BBL), Kasikornbank Public Company Limited (KBank) and Siam Commercial Bank Public Company Limited (SCB) have been affirmed at ‘BBB+’, and their National Long-Term Ratings at ‘AA(tha)’. Krung Thai Bank Public Company Limited’s (KTB) Long-Term IDR has been affirmed at ‘BBB’ and its National Long-Term Rating at ‘AA+(tha)’. The Outlooks are Stable.
Fitch has also taken several rating actions on three of the banks’ subsidiaries. The National Long-Term Ratings on Kasikorn Securities Public Company Limited (KS) and SCB Securities Company Limited (SCBS) have been affirmed at ‘AA-(tha)’ with a Stable Outlook.
Fitch has upgraded the National Long-Term Rating on KTB Leasing Company Limited (KTBL) to ‘AA+(tha)’, the same as KTB, to reflect regulatory changes that put KTBL into KTB’s solo consolidation group and make it a core subsidiary of KTB. Fitch has simultaneously chosen to withdraw the ratings of KTBL for commercial reasons.
A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS – Viability Ratings (VRs)
The VRs of the four banks are driven by their strong domestic franchises and market shares. It also reflects their sound, if not improving, financial performance, with key ratios in line with regional peers. However, the operating environment faced by all the banks remains challenging and highly influences their VR (albeit to a lesser extent in KTB’s case).
BBL has a strong profile in corporate banking, is generally more diversified than other large Thai commercial banks and fares best in the agency’s stress tests. Its capitalisation and reserve coverage are the highest among peers, while its funding and liquidity profile is among the best in Thailand. Asset quality has deteriorated slightly, in line with industry conditions, and performance remains acceptable despite its high provisioning policy.
KBank boasts sound and improving asset quality, steady funding and liquidity, strong capitalisation, as well as high profitability. KBank’s ability to maintain a sound financial position through business cycles is evident from the steady improvement in the bank’s key financial metrics in recent years.
SCB has established positions in various financial products such as mortgages, credit cards, fund management, and bancassurance. Profitability has been consistently high, while key asset quality metrics remain reasonable with acceptable buffers in terms of capital and reserve coverage. The bank had previously adopted an aggressive attitude towards loan growth, which has been scaled back significantly since end-2013, although it remains to be seen if this reflects any long-term change in the bank’s risk appetite.
KTB’s VR is rated two notches below the other large banks, reflecting its lower capitalisation, and weaker asset quality and performance indicators. Key financial ratios such as the NPL ratio, reserve coverage, and profitability have improved substantially in recent years, but still remain generally below the peer average. KTB currently also demonstrates greater vulnerability to the economic slowdown compared to its large domestic peers, such as through asset quality deterioration.
RATING SENSITIVITIES – VR
While all four banks have maintained reasonable metrics despite slow economic growth, protracted economic weakness that results in larger-than-expected and sustained negative impacts on asset quality, profitability and capitalisation could lead to a downgrade of the VRs.
There is little upside to the VRs at BBL, KBank and SCB as these are currently at the same rating as the sovereign. Consequently, a downgrade in the Thai sovereign rating would likely also lead to similar action on their VRs.
The VR at KTB may be upgraded if it can show further significant improvements in capitalisation and performance, and reduce the gap in key financial ratios with its peers.
KEY RATING DRIVERS – IDRS, NATIONAL RATINGS, and SENIOR DEBT
BBL, KBank, and SCB’s IDRs and National Ratings are driven by their Viability Ratings (VR), which reflect their stand-alone strengths.
KTB’s IDRs and ultimately its National Ratings are driven by its Support Rating Floor of ‘BBB’.
The senior debt ratings of BBL, KBank, SCB and KTB are at the same level as the IDRs (for international ratings) or National Ratings, as these debts represent unsecured and unsubordinated obligations of the banks.
RATING SENSITIVITIES – IDRS, NATIONAL RATINGS, and SENIOR DEBT
Any changes in the VRs of BBL, KBank and SCB would likely have a similar impact on their IDRs and National Ratings. Their National Ratings could be upgraded if the operating environment was to stabilise and the banks sustained recent improvements in financial buffers and maintained acceptable risk appetite levels.
Any changes in the Support Rating Floor of KTB would impact its IDRs and National Ratings, although downside risk would be mitigated if, in the future, the bank’s VR is upgraded to at least ‘bbb’.
KEY RATING DRIVERS – SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) and Support Rating Floors (SRF) for all banks reflect their clear systemic importance as the largest commercial banks in the country, with a combined market share in banking deposits of above 65%.
KTB’s Support Rating Floor of ‘BBB’ is one notch higher compared to the other banks, as aside from its systemic importance KTB is also strategically important to the government. KTB is the only state-owned commercial bank, with close operational and branding links to Thailand’s Ministry of Finance.
RATING SENSITVITIES – SUPPORT RATING AND SUPPORT RATING FLOOR
A change in the ability of the authorities to support the banks, such as through a downgrade of the sovereign rating, could lead to a similar change in the SRF.
Any regulatory changes that reduce the authorities’ propensity to support systemically-important banks could also lead to a downgrade in the SR and SRF. However, Fitch views that such a shift would be unlikely in the medium term.
KEY RATING DRIVERS – SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The Tier 2 subordinated debts of all four banks are rated one notch below the corresponding senior debt level. This is to reflect their subordination status, as well as the lack of going concern loss absorption features, and is in line with Fitch’s approach to rating such instruments.
KTB's international hybrid Tier 1 rating of 'B' is rated five notches below the VR, reflecting going-concern risks of this instrument that include a noncumulative coupon deferral feature that could be triggered upon the bank posting a loss. KTB’s national hybrid Tier 1 rating also reflects this implied notching approach from the VR.
RATING SENSITIVITIES – SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Any changes in the Long-Term IDRs and National Ratings of the four banks would also affect their subordinated debt ratings.
Any change in KTB’s VR would impact the ratings on its hybrid Tier 1 securities.
SUBSIDIARY KEY RATING DRIVERS
The National Ratings of KS and SCBS reflect Fitch’s view that these securities companies are strategically-important subsidiaries, with ratings that are notched down once from their respective bank parents’ ratings.
SUBSIDIARY RATING SENSITIVITIES
The National Ratings of KS and SCBS would be impacted by any changes in the National Ratings at KBank or SCB respectively. Alternatively, any shift in Fitch’s view on the relative importance of these subsidiaries could also lead to a change in the notching. For example, a reduction in their strategic importance to their parents due to share sales by the parents or reduced operational integration, could lead to a wider notching between KS and SCBS and their parents. However, Fitch views that this is unlikely in the short to medium term.
The rating actions are as follows:
BBL
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)'
Senior unsecured USD3bn GMTN programme affirmed at 'BBB+'
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)'
KBank
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)'
Senior unsecured USD2.5bn EMTN programme affirmed at 'BBB+'
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)'
SCB
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)'
Senior unsecured USD3.5bn MTN programme affirmed at 'BBB+'
Long-term foreign currency senior unsecured debt affirmed at 'BBB+'
National rating on short-term senior unsecured debt programme affirmed at 'F1+(tha)'
National rating on long-term subordinated debt affirmed at 'AA-(tha)'
KTB
Long-Term Foreign-Currency IDR affirmed at 'BBB'; Stable Outlook
Short-Term Foreign-Currency IDR affirmed at 'F3'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB'
National Long-Term Rating affirmed at 'AA+(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'
Senior unsecured USD2.5bn EMTN programme affirmed at 'BBB'
Senior unsecured notes affirmed at 'BBB'
Subordinated US dollar debentures affirmed at ‘BBB-‘
International rating for hybrid Tier 1 securities affirmed at 'B'
National rating on THB20bn short-term debenture programme affirmed at 'F1+(tha)'
National subordinated debt rating affirmed at 'AA(tha)'
National rating hybrid Tier 1 securities affirmed at 'BBB(tha)'
KS
National Long-Term Rating affirmed at 'AA-(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'
SCBS
National Long-Term Rating affirmed at 'AA-(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'
KTBL
National Long-Term Rating upgraded to 'AA+(tha)' from ‘AA-(tha)’; Stable Outlook, and withdrawn
National Short-Term Rating affirmed at 'F1+(tha)' and withdrawn