Bangkok--17 Apr--Fitch Ratings
Fitch Ratings has affirmed Krung Thai Bank Public Company Limited's (KTB) Long-Term Issuer Default Rating (IDR) 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
Highly probable sovereign support from the Thai government (BBB+/Stable) drives KTB's ratings on international and national scales, including its senior debt ratings. Fitch believes the state is highly likely to extend extraordinary support to KTB in the event of financial stress. Such support is captured in the bank's Support Rating of '2' and Support Rating Floor of 'BBB', which in turn determines the bank's Long-Term IDR of 'BBB'. The senior debt represents unsecured and unsubordinated obligations of the bank.
VIABILITY RATINGS
KTB's standalone credit profile is weaker than Fitch's assessment of support, and is captured in KTB's Viability Rating (VR) of 'bbb-', which is one to two notches below that of Thailand's other large banks. Fitch takes into account the bank's capitalisation level relative to its risk appetite and earning capacity and expects KTB's core capital ratios to remain broadly in the range of Thai banks with similar VRs. KTB's VR also reflects the bank's strong domestic franchise and significant client base, particularly among state enterprises and civil servants. These relationships with government-related entities help KTB sustain its stable funding profile.
KTB faces near-term uncertainty over its earnings as a result of fee-income pressure and higher incremental investments in digital banking, but Fitch believes KTB can capably navigate these challenges over the medium term. Persistent asset-quality issues, on the other hand, have been dragging down KTB's standalone profile. Concentration risks, the bank's above-average risk appetite, and its medium-term growth plans in risky segments may put downward pressure on its VR.
SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
The Support Rating and SRF of KTB reflect the bank's systemic importance to the Thai financial system, evident in its deposit market share of over 15%. KTB's SRF of 'BBB' is one notch higher than those for the three major private-sector banks that are assigned SRFs. This reflects KTB's importance to the financial sector and to the government, who holds a majority stake only in KTB among Thai commercial banks. KTB maintains close operational and branding links with Thailand's Ministry of Finance.
SUBORDINATED DEBT
KTB's Basel III Tier 2 subordinated Thai baht-denominated notes are rated one notch below their National Long-Term Ratings to reflect their lack of mandatory full write-down features, as well as their higher loss-severity risks than senior unsecured instruments, which arise from their subordinated status. There is no notching for non-performance risks as the notes' key terms exclude going-concern loss-absorption features.
KTB's US dollar-denominated Basel III Tier 2 subordinated debt is rated one notch below the bank's IDR. Fitch has used the support-driven IDR rather than the VR as the anchor, since the agency believes government support would flow through to KTB to pre-empt non-viability. The one-notch differential reflects the notes' subordinated status, the presence of partial rather than mandatory full write-down features, and the lack of going-concern loss-absorption features.
RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The IDR, National Ratings and ratings on KTB's senior debt would be affected by changes in its Support Rating Floor, which in turn reflects Fitch's view on the sovereign's capacity and propensity to provide timely extraordinary support to KTB.
VIABILITY RATINGS
KTB's VR is most sensitive to changes in the bank's capitalisation. Fitch may downgrade KTB's VR if its Fitch Core Capital ratio fall well below its 'bbb-' peers as a result of greater asset-quality risks, higher risk appetite, or prolonged weaker earnings. A more aggressive lending policy, for example, could heighten asset-quality risks in a way that materially pressures capitalisation. A VR upgrade is unlikely, but could be triggered by concurrent and significant improvement in risk appetite, asset quality and capitalisation.
SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
Fitch may re-assess the support ratings for KTB if the government's ability to provide support to these banks diminishes. This may happen if the agency downgrades Thailand's Long-Term Foreign-Currency IDR.
The SRF of KTB could change if Fitch changes its view on the propensity of the state to provide support to the bank. However, Fitch does not expect such changes over the medium term given KTB's role as a quasi-policy bank.
SUBORDINATED DEBT
KTB's subordinated debt instruments would be affected by changes in the anchor ratings for the respective instruments, namely the bank's Long-Term Foreign-Currency IDR or National Long-Term Rating.
Please note that only the Bank Rating Criteria (published on 12 October 2018) and National Scale Ratings Criteria (published on 18 July 2018) were used in this analysis for this rating.
Additional information is available on www.fitchratings.com