Bangkok--Mar 14--Fitch Ratings
Fitch Ratings, the international credit rating agency, has today assigned an international rating of ‘BB-’ (BB minus) to Thai Military Bank’s (“TMB”) Upper Tier II subordinated note issue of up to USD250 million with a maturity of 10 years. The notes are redeemable in whole at the option of TMB, subject to the prior consent of the Bank of Thailand after five years from the issue date. TMB also has the right to defer interest payments on the notes if it makes no profit and is unable to pay dividends to its common and preferred shareholders.
In February 2005, Fitch upgraded TMB’s ratings after the release of the bank’s preliminary 2004 results showed a recovery in profitability. Fitch notes that the merger with The Industrial Finance Corporation of Thailand (“IFCT”) and DBS Thai Danu Bank (“DTDB”) and the operational support from Singapore’s DBS Bank (“DBS”) should see TMB’s profitability strengthen further over the medium-term.
Underlying operating revenues are recovering, although profitability is still below its peer average, with net interest margins at 2.1% in 2004. Net income improved to THB948m in 2004 due mainly to lower provisioning and funding costs following the redemption of hybrid securities after a large loss the prior year. Lower provisioning, as well as the refinancing of IFCT’s higher-cost wholesale funding, together with stronger loan growth should result in higher revenues and improved profitability in 2005.
The merger should enhance TMB’s franchise in the medium-term, particularly with the support of a strong strategic partner in DBS, which currently holds a 16% stake in the bank. DBS shall provide technical support in several key areas, including credit, funding and risk management. However, the cost benefits from the merger may be limited due to social and political constraints on significant branch closures and staff redundancies in Thailand.
At end-2004, TMB reported impaired loans of THB66.4bn, or about 12.9% of total loans, up from THB35bn or 11.7% at end-2003 due mainly to the consolidation of impaired loans from IFCT. Loan loss reserves stood at THB44.3bn, which amounted to about 66.7% of impaired loans, a level Fitch believes to be reasonable, although the high level of restructured loans and IFCT’s weak asset quality still presents some risk of further provisioning. TMB’s net impaired loans/equity stood at 49% at end-2004, which should fall on the back of improved asset quality.
At end-2004, TMB’s Tier 1 capital stood at 6% of risk-weighted assets (“RWA”) and total capital at 8.8% of RWA. While these ratios remain weaker than TMB’s peers, a recovery in earnings over the next two to three years should assist in the strengthening of its capital base.
Contact:
Chaiyapat Paitoon;
Vincent Milton, Bangkok +662 655 4759/4762;
David Marshall, Hong Kong +852 2263 9963 End.