Bangkok--17 Apr--Fitch Ratings
Fitch Ratings has today affirmed the Long-Term Issuer Default Rating (IDR) on Bangkok Bank Public Company Limited (BBL) at 'BBB+' and its National Long-Term Rating at 'AA+(tha)'. The Outlooks are Stable.
A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The IDRs, National Ratings, and ratings on the senior debt of BBL are driven by its standalone strength, which is denoted by its Viability Rating (VR). The senior debt represents unsecured and unsubordinated obligations of the bank.
VIABILITY RATING
The VR of BBL is based on the bank's strong domestic franchise, stable funding and liquidity as well as sound capitalisation. BBL has consistently maintained its strong market positions in the large-corporate-client segment and in international banking. The rating also reflects BBL's conservative management style relative to domestic peers, which is evident from its consistently stronger buffers versus peers, such as reserve coverage ratio of 191% at end-2018, Fitch Core Capital ratio of 17% and loan-to-deposit ratio of 90% (Thai banking sector average: 145%, 16.0% and 98%, respectively). The rating also takes into account BBL's profitability ratios, which have been persistently lower but more stable than those of peers, largely reflecting the bank's approach to risk.
Fitch expects BBL to gradually increase profitability in 2019 on growth in earnings and lower provisioning costs from easing pressure on asset quality. An adverse change in economic conditions may negatively impact BBL's profitability and asset quality, but the bank's solid buffers should mitigate the risk.
SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
The Support Rating and SRF of BBL are based on its systemic importance to the Thai financial system, as reflected by its significant deposit market share of 17%.
SUBORDINATED DEBT
Fitch rates BBL's legacy Tier 2 notes (non-Basel III compliant) one notch below BBL's Long-Term IDR to reflect their subordination in the capital structure and likely loss severity relative to senior debt. No further notching is applied as there is no going-concern loss-absorption feature, and there is no mandatory full write-down. The issue rating is in line with Fitch's approach to rating similar subordinated debt instruments.
RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The IDRs, National Ratings and ratings on the senior debt of BBL are sensitive to changes in its standalone profile as indicated by its VR.
The National Ratings of BBL are also sensitive to changes in relative creditworthiness among Thai peers. For example, BBL's National Long-Term Rating may be upgraded if the bank's key financial metrics such as capital and liquidity show sustained improvement relative to Thai peers, even if its VR remains the same.
VIABILITY RATING
There is unlikely to be upside to the VR on BBL in the near term. The rating is at the same level as the Thai sovereign's Long-Term Foreign-Currency IDR (BBB+/Stable), and the bank has a substantial exposure to sovereign bonds. For this reason, a downgrade of the sovereign's Long-Term Foreign-Currency IDR could result in a similar rating action for the VR on BBL.
Substantial deterioration in profitability and asset quality to below 'bbb' category standards and that eclipse BBL's strong buffers could trigger a VR downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
Fitch may re-assess the SRF on BBL if the government's ability to provide support to the bank diminishes. This may happen if the agency downgrades Thailand's Long-Term Foreign-Currency IDR, leading to similar changes in the bank's SRF.
The SRF on BBL could change if Fitch changes its view on the propensity of the state to provide support to this systemically important bank. However, Fitch does not expect such changes over the medium term.
SUBORDINATED DEBT
The subordinated debt instruments of BBL would be affected by changes in its Long-Term IDR.
Please note that only the Bank Rating Criteria (pub. 12 October 2018) and National Scale Ratings Criteria (pub. 18 July 2018) were used in the analysis for this rating action.
Additional information is available on www.fitchratings.com