Bangkok--7 Nov--Fitch Ratings
Fitch Ratings has affirmed all ratings of Islamic Bank of Thailand (IBANK), including its Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Positive Outlook, and its National Long-Term Rating at 'AA(tha)' with a Stable Outlook. At the same time, Fitch has withdrawn the international scale ratings of IBANK, comprising its Long-Term IDR, Short-Term IDR, Support Rating, and Support Rating Floor.
A full list of rating actions is at the end of this rating action commentary.
Fitch has chosen to withdraw the ratings of IBANK for commercial reasons.
KEY RATING DRIVERS
Fitch believes that IBANK would benefit from a high probability of state support, if the need arises. IBANK's Long-Term IDR is two notches below that of the sovereign, while its National Long-Term Rating is at 'AA(tha)'. This wider notching compared with other state policy banks rated by Fitch, which have a Long-Term IDR that is equalised with that of the sovereign, or have National Long-Term Ratings at 'AAA(tha)', reflects the bank's more limited policy role, and our expectations that the state's shareholding in IBANK is not as long term and strategic compared with other state policy banks. Furthermore, there is a lower level of explicit legal and financial support from the government in IBANK's establishment act.
IBANK's restructuring has led to some improvements in the bank's profile over the past several years. The Thai Ministry of Finance's (MOF) direct stake in IBANK was previously capped at 49%, but this has been temporarily waived as part of IBANK's recapitalisation. The MOF stake in IBANK is now 99.6%, following a THB18.1 billion capital injection in 4Q18. The MOF also moved a large portion of bad assets out of the bank to a state-owned asset-management corporation in June 2017. These significant initiatives reinforce our view on the state's propensity to support the bank, which we expect to continue. The improvement in IBANK's viability potentially enhances its ability to fulfil a policy role for the government, but this ability currently remains limited by its still-weak financial position and small size.
The Positive Outlook on IBANK's Long-Term IDR is in line with the Positive Outlook on the Thai sovereign's Long-Term IDR. The Stable Outlook on IBANK's National Long-Term Rating reflects Fitch's expectations that the government's propensity to support the bank is unlikely to change in the medium term.
RATING SENSITIVITIES
There could be upside to the ratings if Fitch assesses there is an increased probability that in the medium term, IBANK will see a strengthened policy role, with more pronounced government support and commitment to the bank.
The agency may downgrade the ratings of IBANK if the sovereign's propensity to support the bank declines. Fitch does not at the moment expect changes to the bank's legal status as a state policy bank. However, the agency may take negative rating action if IBANK's policy role is significantly diminished, or if there is a substantial dilution in the state's effective ownership.
Additional information is available on www.fitchratings.com