Bangkok--Jun 30--Fitch Ratings
Fitch Ratings, the international ratings agency, has today affirmed Kasikornbank Public Company Limited’s (“KBANK”) Long-term foreign currency rating at ‘BBB+’ with a Stable Outlook, Short-term foreign currency at ‘F2’, foreign currency subordinated at ‘BBB’, Individual at ‘C’ and Support at ‘2’. At the same time, Fitch Ratings (Thailand) has affirmed KBANK’s National Long-term rating at ‘AA(tha)’ with a Stable Outlook, National Short-term at ‘F1+(tha)’ and National subordinated at ‘AA-(tha)’ (AA minus (tha)).
KBANK’s ratings reflect the sustained improvement in profitability, asset quality and capital, its strong domestic banking franchise in the middle market, corporate and retail banking, as well as a good management track record. The bank’s revenues are showing stronger signs of recovery, with asset quality problems from the 1997 crisis becoming less of a burden. The ratings also factor in the high probability of government support due to its systemic importance. The Outlook for the ratings is Stable given underlying profitability and asset quality should be maintained notwithstanding some weakening in the economic growth outlook for 2005. KBANK’s debt ratings are currently capped by the Thai sovereign rating. A further significant decline in impaired and restructured loans, as well as structural improvements in the Thai economy and the banking system including the regulatory and legal framework will also be necessary to support further improvement in the bank’s ratings.
KBANK has implemented a number of reforms since the 1997 crisis aimed at restoring its 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. These steps are yielding results and helping to support the bank’s return to profitability.
KBANK reported stronger operating results for 2004 due to a further fall in funding costs (from the redemption of its hybrid securities) as well as higher loan growth and improved fee income. As a result, KBANK’s net interest margin improved significantly to about 3.2% from 2.5% in the prior year. In Q105, net profit fell to THB3.8billion from THB4.4bn in Q104 mainly due to larger income tax expenses as tax loss benefits were used up. Annualised net interest margin in Q105 continued to look strong at 3.4%.
KBANK’s impaired loans fell to 11.7% of gross loans at end-March 2005 from a crisis peak of about 50%. Loan loss reserves also declined to THB40.8bn due to write-offs, equating to about 58.9% of the remaining impaired loans. KBANK redeemed its hybrid securities in January 2004, although higher earnings have mitigated the impact on capital. At end-March 2005, KBANK’s Tier 1 capital ratio stood at 7.9% while its total capital ratio stood at 13.1%. KBANK’s earnings growth should continue to strengthen its capital position, although a higher dividend payout and growth could offset this.
KBANK, established in 1945 by the Lamsam family, is Thailand’s third-largest commercial bank, with a 13% share of deposits and loans. The Lamsam Group remains the bank’s single largest shareholder, although its stake has been significantly diluted since the 1997 crisis.
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 UK, is involved in the day-to-day operation of, or credit rating reviews undertaken by, Fitch Ratings (Thailand) Limited.
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.
Fitch’s rating definitions are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963. End.