Bangkok--Dec 21--Fitch Ratings
Fitch Ratings (Thailand) has today assigned Kiatnakin Finance Public Company Limited (“KK”) National Long- and Short-term ratings of ‘BBB+(tha)’ and ‘F2(tha)’ respectively, with a Stable Outlook. The ratings of KK reflect its strong profitability and capital position, but factors in asset quality concerns such as relatively high exposure to property developers and provisioning risks as well as its weaker funding and liquidity profile compared to larger financial institutions. KK expects to become a commercial bank by July 2005 to undertake a wider business scope and enable the firm to accept saving and checking deposits. This should help improve its funding profile over the medium term. KK’s profitability reflects strong loan growth, lower funding costs and brokerage fees as well as gains on distressed assets.
In the first nine months of 2004 (“9M04”), net income rose to THB1.8 billion (9M03: THB1.4bn), due to strong loan growth of 33%. KK’s net interest margin (“NIM”) improved to 8% in 2003 from 5% in 2001, although it dropped slightly to 7.2% in 9M04. However, these figures overstate underlying NIM, as distressed asset recoveries are included. While rising interest rates and increasing competition may affect KK’s margins and earnings growth in the next two years, it has increased long-term funding to more than half of its total funding to help mitigate the impact.
At end-September 2004, residential project loans and auto hire purchase made up the bulk of KK’s loan portfolio. Impaired loans increased to THB6.3bn (or 13.9% of total loans) from THB3.1bn (or 9.3% at end-2003) due to the relapse and reclassification of restructured loans. Due to the rise in impaired loans, loan loss reserve coverage fell to 59.8% of impaired loans at end-September 2004 from 98.9% at end-2003. Fitch cautions that relatively high exposure to property developers and rapid auto loan growth pose risks of further asset quality deterioration over the next two years.
Fitch notes that brokerage fees contributed about 8% of total revenue in 2003, although this tends to be volatile. Income from its distressed asset management business, which accounted for about 16% of revenue in 2003, should continue to support earnings as KK acquired THB2.2bn (29% of face value) of distressed assets from the Legal Execution Department in the past year, in addition to the remaining THB8.5bn (average 31% of face value) of distressed assets acquired from the Financial Restructuring Authority (“FRA”) and other banks since 1998.
KK’s liquid asset/deposit ratio increased in 2003, with cash and investments rising to 25.9% of deposits at end-2003. Strong asset growth resulted in liquidity weakening to 11.7% at end-September 2004. Its loan/deposit ratio also tightened to 131% at end-2003, though at end-September 2004 it was 125%. KK is reliant on volatile funding from larger depositors though the banking platform should provide a more stable retail depositor base over the long-term.
KK’s Tier 1 capital increased to THB12.1bn at end-2003 (31.4% of risk weighted assets (“RWA”)) from THB10.4bn (29.9% of RWA) at end-2002 due to internally-generated profit and the exercise of warrants. While strong asset growth and dividend payouts will see capital ratios fall, KK is still expected to be relatively well-capitalised for a Thai financial institution.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
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. End.