Bangkok--3 Jul--Fitch Ratings
Fitch Ratings (Thailand) has affirmed KTB Securities (Thailand) Public Company Limited's (KTBST) National Long-Term Rating at 'BB(tha)' with a Stable Outlook, National Short-Term Rating at 'B(tha)' and subordinated debentures at 'BB-(tha)'.
KEY RATING DRIVERS
NATIONAL RATINGS
KTBST's National Ratings are based on its standalone financial profile and reflect its small domestic franchise, with about 1% market share in 1Q19. The ratings also take into account KTBST's small capital base and higher leverage relative to Fitch-rated peers. The company remains exposed to funding and liquidity risk over the medium-term due to its unproven funding stability and limited history of capital-market access. Nonetheless, funding and liquid risk over the short-term could be mitigated by KTBST's liquid-asset holdings and available credit lines.
Fitch expects KTBST's improving earnings and profitability to remain more volatile than that of domestic peers over the medium-term due to its weaker franchise, as reflected in its developing business model, and high operating costs. Downside risk could arise from KTBST's increasing risk appetite, as evidenced by its strong growth aspiration, which could exceed its risk-control capacity. Its planned stock-market listing has been delayed to 2020; the listing, if it occurs, should strengthen KTBST's capital position at its current rating, as we do not expect the company to raise significant amounts of new capital.
SUBORDINATED DEBT
KTBST's subordinated debentures are rated one notch below KTBST's National Long-Term Rating to reflect their higher loss-severity risk relative to senior unsecured instruments. This arises from their subordinated status, as subordinated noteholders rank after senior creditors in the priority of claims. Additional notching has not been applied to the subordinated debentures due to the lack of going-concern loss-absorption and equity-conversion features.
RATING SENSITIVITIES
NATIONAL RATINGS
Fitch believes near-term rating upside is limited. The current ratings reflect KTBST's improving trend in its financials. A significant and sustained improvement in its scale, domestic franchise and financial profile is likely to take some time. A continuing improvement in overall performance and key financial ratios should strengthen its current rating level.
A reversal of the improving financial trends, such as a significant weakening in capitalisation, profitability or liquidity, which deviates from Fitch's expectations and industry trends could put downward pressure on the ratings. More difficult operating conditions or an increasingly competitive environment would also weigh negatively on the ratings given KTBST's limited franchise.