Bangkok--4 Jun--Fitch Ratings
Fitch Ratings (Thailand) has today assigned a National Long-Term Rating of 'AA(tha)' to Krung Thai Bank Public Company Limited's (KTB; AA+(tha)/Stable) upcoming Thai baht-denominated Basel III-compliant Tier 2 subordinated unsecured debentures. At issuance, the debentures will have a tenor of 10 years with an option to redeem after five years. The purpose of the debt issue is to support the bank's capital ratios, with the proceeds used for its liquidity requirements and general corporate purposes.
KEY RATING DRIVERS
KTB's Basel III Tier 2 notes are rated one level below the anchor rating of 'AA+(tha)'. This reflects the notes' higher loss-severity risks compared with senior unsecured instruments due to the notes' subordination to the latter. Key terms of the notes include a non-viability trigger, which is 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 bank's Tier 2 notes are senior to any Additional Tier 1 securities with loss-absorption features. If written down, the Tier 2 notes would rank pari passu with KTB's other Tier 2 loss-absorbing instruments that have write-down features.
The agency uses KTB's National Long-Term Rating of 'AA+(tha)' as the anchor rating. KTB's National Long-Term Rating is driven by its Support Rating Floor (SRF) of 'BBB', which in turn reflects KTB's strategic importance to the Thai government as well as the bank's systemic importance to the Thai economy. This anchoring approach mirrors that for rating KTB's US dollar-denominated Basel III Tier 2 instrument, for which the agency uses the SRF-driven Issuer Default Rating as the anchor. For this upcoming instrument, Fitch continues to believe that the SRF best reflects the risk of non-viability.
KTB is 55% held by the Bank of Thailand's Financial Institutions Development Fund. It remains the only state-controlled commercial bank in Thailand, retains close operational links with the Ministry of Finance, and performs cash management services for the Thai government.
RATING SENSITIVITIES
Changes in KTB's National Long-Term Rating would have a similar effect on the rating of the subordinated notes.
KTB's National Long-Term Rating, in turn, is sensitive to changes in the bank's Support Rating Floor, which reflects Fitch's view on the sovereign's capacity and propensity to provide timely extraordinary support to KTB in times of need.
Please note that only the Bank Rating Criteria (published on 12 October 2018) and the National Scale Ratings Critiera (published on 18 July 2018) were used in the analysis for this rating.