Bangkok--Feb 4--Fitch Ratings
Fitch Ratings, the international ratings agency, today upgraded the ratings on Bangkok Bank (“BBL”), Kasikornbank (“KBANK”), Siam Commercial Bank (“SCB”), Bank of Ayudhya (“BAY”), Thai Military Bank (“TMB”) and Bank of Asia (“BOA”). At the same time, the agency also affirmed the ratings on Krung Thai Bank (“KTB”). Fitch’s rating actions followed the recent release of Thai banks’ preliminary 2004 financial results, which generally showed continued improvement in profitability, mainly due to stronger loan growth, further decline in funding costs and smaller provisions. Fitch says prospects for the sector remain positive given Thailand’s strong domestic economy, improving property and asset prices and a pick-up in corporate and consumer financing activity, which should help more fully restore Thai banks’ financial strength over the next two to three years.
While Thai banks’ gross spreads have been abnormally high and may weaken as liquidity starts to tighten, the negative impact of higher funding costs on profitability should be mitigated by lower impaired loans and stronger loan growth. Hence, net interest margins and profitability should generally continue to strengthen in 2005 and 2006. Fitch notes that while Thai banks’ reserve and capital levels have improved, stronger asset growth over the next two to three years may see some Thai banks raise additional capital or seek capital relief via securitization.
SCB and KBANK continued to report the most solid financial performance, in terms of earnings, asset quality and profitability. SCB, the largest private mortgage lender in Thailand, reported a net profit of THB18.5 billion in 2004, driven by a further fall in funding costs, improved fee and service income and higher one-off gains from investments. Its cost-to-income ratio, reserve coverage and capital position are now the strongest of the Thai banks. Meanwhile, KBANK, Thailand’s third-largest bank, reported an improved net profit of THB15.3bn at end-2004, on the back of a big fall in funding costs, mainly due to the redemption of its hybrid securities. The bank’s net interest margin and underlying profitability are the highest among the Thai banks. The Long and Short-term foreign currency senior debt ratings of SCB and KBANK are now capped by the Thai sovereign rating.
BBL, Thailand’s largest bank, also showed improved financial performance with net profit rising to THB17.6bn in 2004 mainly due to higher loan growth and lower funding costs. Its asset quality is expected to improve significantly on the back of declassification of the bank’s exposure to the Thai Petrochemical Industry (“TPI”) following the expected finalisation of TPI’s rehabilitation. BAY and TMB also showed improved financial results with net profits increasing to THB4.7bn and THB1bn, respectively. Earnings growth, improving asset quality and warrant conversion should enable BAY to strengthen its reserve coverage. The completion of Industrial Finance Corporation of Thailand’s integration with TMB and the operational support of Singapore’s DBS Bank should see TMB’s profitability strengthen further over the medium term.
KTB, the largest state-owned bank, also reported improved financial performance in 2004 with improved net interest margins and net profit rising to THB11.1bn, although the bank’s asset quality and reserve coverage deteriorated following the large impaired loan reclassification in 2004. At end-2004, KTB’s net impaired loans-to-equity ratio stood at 74.2%, which was the weakest among the major Thai banks. While majority government ownership and control has underpinned KTB’s long-term ratings, this has tended to undermine the bank’s asset quality and profitability. BOA, which was acquired by Singapore’s United Overseas Bank (“UOB”) last year, also made additional provisioning due to re-evaluation of impaired loans, which impacted profitability in 2004, although the financial and operational support of UOB should bolster its financial position in 2005 and 2006.
The rating actions are as follows:
Bangkok Bank (“BBL”): Long-term foreign currency upgraded to ‘BBB’ Stable Outlook from ‘BBB-’ (BBB minus); Subordinated foreign currency upgraded to ‘BBB-’ (BBB minus) from ‘BB+’; Individual upgraded to ‘C/D’ from ‘D’; all other ratings are affirmed as follows: Short-term foreign currency ‘F3’; Support ‘2’;
Kasikornbank (“KBANK”): Long-term foreign currency ‘BBB’ Outlook revised to Positive from Stable; Subordinated foreign currency upgraded to ‘BBB’ from ‘BBB-’ (BBB minus); Individual upgraded to ‘C’ from ‘C/D’; all other ratings are affirmed as follows: Short-term foreign currency ‘F3’; Support ‘2’; National Long-term ‘AA(tha)’ Stable Outlook; National Short-term ‘F1+(tha)’; National Subordinated ‘AA-(tha)’ (AA minus (tha));
Siam Commercial Bank (“SCB”): Long-term foreign currency ‘BBB’ Outlook revised to Positive from Stable; Subordinated foreign currency upgraded to ‘BBB’ from ‘BBB-’ (BBB minus); Individual upgraded to ‘C’ from ‘C/D’; all other ratings are affirmed as follows: Short-term foreign currency ‘F3’; Support ‘2’;
Bank of Ayudhya (“BAY”): Long-term foreign currency upgraded to ‘BB’ Positive Outlook from ‘BB-’ (BB minus); Subordinated foreign currency upgraded to ‘BB-’ (BB minus) from ‘B+’; Individual upgraded to ‘D’ from ‘D/E’; National Long-term upgraded to ‘A-(tha)’ (A minus (tha)) Positive Outlook from ‘BBB+(tha)’; National Short-term upgraded to ‘F1(tha)’ from ‘F2(tha)’; National Subordinated upgraded to ‘BBB+(tha)’ from ‘BBB(tha); all other ratings are affirmed as follows: Short-term foreign currency ‘B’; Support ‘3’;
Thai Military Bank (“TMB”): Long-term foreign currency upgraded to ‘BB+’ Positive Outlook from ‘BB-’ (BB minus); Subordinated foreign currency upgraded to ‘BB’ from ‘B+’; Individual upgraded to ‘D’ from ‘D/E’; National Long-term upgraded to ‘A(tha)’ Positive Outlook from ‘BBB+(tha)’; National Short-term upgraded to ‘F1(tha)’ from ‘F2(tha)’; National Subordinated upgraded to ‘A-(tha)’ from ‘BBB(tha); all other ratings are affirmed as follows: Short-term foreign currency ‘B’; Support ‘3’;
Bank of Asia (“BOA”): Individual upgraded to ‘C/D’ from ‘D’; all other ratings are affirmed as follows: Long-term foreign currency ‘BBB’ Positive Outlook; Short-term foreign currency ‘F3’; Support ‘2’; National Long-term ‘AA+(tha)’ Stable Outlook; National Short-term ‘F1+(tha)’; National Subordinated ‘AA(tha)’;
Krung Thai Bank’s (“KTB”) ratings are affirmed as follows: Long-term foreign currency ‘BBB-’ Stable Outlook; Short-term foreign currency ‘F3’; Subordinated foreign currency ‘BB+’; Individual ‘D’; Support ‘2’; National Long-term ‘AA(tha)’ Stable Outlook; National Short-term ‘F1+(tha)’; National Subordinated ‘AA-(tha)’ (AA minus (tha)).
Contact:
Chaiyapat Paitoon, Vincent Milton,
Bangkok +662 655 4762/4759;
David Marshall,
Hong Kong +852 2263 9963
Note to Editors: Fitch’s Support and Individual Ratings for Banks: Fitch’s Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it.
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.
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 End.