Bangkok--Nov 12--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) has today assigned a National Short-term rating of ‘F1+(tha)’ to Kasikornbank Public Company Limited’s (“KBANK”) unsecured, unsubordinated debentures of up to THB50 billion with a maturity of no more than 270 days to be issued in several tranches over the next three years. At the same time, Fitch also affirmed KBANK’s National Long-term Senior Unsecured debt rating of ‘AA(tha)’ and National Subordinated debt rating of ‘AA-(tha)’ (AA minus (tha)).
The ratings are based on the agency’s view of a high propensity for government support due to KBANK’s large deposit share, strong institutional links and importance to the Thai economy. The bank’s ratings take into account its strengthening asset quality, core capital, reserve coverage and profitability, which have improved significantly over the past three years. Earnings growth is also showing stronger signs of recovery on back of corporate and consumer lending growth, with the asset quality problems from the 1997 crisis becoming less of a drag.
KBANK’s reforms since the crisis are starting to yield results and supporting a return to profitability. These have included reducing costs, reorganising branches, strengthening risk management and senior and middle management, as well as shifting towards a diversified and service-oriented retail and small business banking model. The bank also expects to acquire a securities licence through the purchase of Asset Plus Securities by end-2004.
KBANK’s stronger 2003 operating results were due to lower provisioning expenses, a further fall in funding costs, improved fee income, larger gains on foreign exchange, bonds and revaluation of AMC assets. It reported a net profit of THB14.8bn at end-2003, up from THB6.7bn at end-2002. Nonetheless, KBANK’s results for the first nine months of 2004 were impacted by lower gains on investments, mainly due to the prior period’s one-off gain of THB2.7bn on its reclassification of investments in its bad loan vehicle, Ploy AMC. Stripping out gains and losses on the reclassification of investments, KBANK’s underlying results continued to improve in 2004, with net interest margins strengthening to about 3%.
KBANK’s level of impaired loans, while still high by international comparison, has fallen significantly from its peak. At end-September 2004, impaired loans stood at THB74.6bn, or 12.8% of total loans. KBANK’s loan loss reserves (LLR) of THB59.2bn at end-September 2004, equating to about 79.4% of impaired loans. KBANK’s LLR coverage is among the highest of the Thai banks, although the substantial level of restructured loans still pose provisioning risks. Its net impaired loans-to-equity ratio (a measure of its capital buffer to absorb loan losses; the lower the ratio, the stronger the bank’s position) has strengthened significantly to about 26% and should continue to fall.
At end-September 2004, KBANK’s Tier 1 capital and total capital ratio stood at 8.3% and 13.5%, respectively, which is strengthening on the back of earnings recovery. While KBANK is likely to resume dividend payouts in 2004, it is expected to maintain a strong capital position.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
National Short-term ratings: ‘F1(tha)’ indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in Thailand. Under Fitch’s Thai national rating scale, this rating is assigned to the "best" credit risk relative to all others in Thailand and is normally assigned to all financial commitments issued or guaranteed by the Thai government. Where the credit risk is particularly strong, a "+" is added to the assigned rating.
Disclosure: Kasikorn Asset Management Company Limited (of which KBANK holds 71.4%) owns 10% of the shares in Fitch Ratings (Thailand) Limited. No shareholder, other than Fitch Ratings Limited of the United Kingdom, is involved in the day-to-day operation of, or credit rating reviews undertaken by, Fitch Ratings (Thailand) Limited.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963 End.