Bangkok--10 May--Fitch Ratings
Fitch Ratings (Thailand) has today assigned a rating of 'A+(tha)' to TMB Bank Public Company Limited's (TMB; AA-(tha)/Stable) upcoming Thai baht-denominated Basel III-compliant Tier 2 subordinated unsecured debentures.
The debenture issue will be up to THB20 billion and have a greenshoe option of THB10 billion. The notes will have a tenor of 10 years.
KEY RATING DRIVERS
The Basel III Tier 2 notes are rated one notch below the anchor rating, TMB's National Long-Term Rating of 'AA-(tha)', to reflect the notes' subordinated status and higher loss-severity risks relative to senior unsecured instruments. Key terms of the notes include a non-viability trigger (defined as emergency capital assistance from the central bank or any other empowered government agency), with partial rather than mandatory full write-down features.
The Tier 2 notes are senior to any Additional Tier 1 securities with loss-absorption features. If written down, the Tier 2 notes rank pari passu with TMB's other Tier 2 loss-absorbing instruments that have write-down features.
The National Long-Term Rating is used as the anchor rating because it reflects the bank's standalone financial strength. Fitch believes that TMB's standalone credit profile best indicates its non-performance risk (that is, becoming non-viable). Fitch has not applied additional notching to the notes, as they have no going-concern loss-absorption features.
TMB's standalone financial strength, as reflected in the Viability Rating (VR), takes into account the bank's moderate domestic franchise as Thailand's seventh-largest bank by deposits, with a market share of about 5%. TMB's financials have improved steadily, narrowing gaps with larger peers, particularly in asset quality. Fitch expects TMB's financials to remain stable, despite increasing risk appetite in the SME and home mortgage segments.
On 27 February 2019, TMB and Thanachart Bank Public Company Limited announced that they have signed a non-binding memorandum of understanding for a merger. The transaction is still in its early stages, with only limited information disclosed. Fitch expects to take rating actions if the merger plans are executed and when any changes in the credit profiles of the two banks become clearer. For full details, please see Fitch's commentary titled Fitch Rtgs: TMB-Thanachart Merger to Boost Franchise; Rating Upside Unclear, dated 11 March 2019.
RATING SENSITIVITIES
Any change in TMB's National Long-Term Rating would have a similar effect on the rating of the notes.
TMB's National Long-Term Rating is sensitive to changes in the bank's VR. Fitch may upgrade TMB's VR if the bank significantly improves its domestic franchise and most of its core financial metrics - including earnings and capital - sustainably and significantly over the medium term without a corresponding increase in its risk appetite. Conversely, the VR could come under pressure if TMB's financial metrics were to deteriorate sharply relative to domestic and international peers, such as may occur from an unexpected deterioration in the operating environment.
For full details on the rating drivers and sensitivities for TMB, please see our previous rating action commentary, dated 10 September 2018.