Bangkok--Jul 29--Fitch Ratings
Fitch Ratings, the international ratings agency, has today affirmed Bank of Ayudhya Public Company Limited’s (“BAY”) Long-term foreign currency rating at ‘BB’ with a Positive Outlook, Short-term foreign currency at ‘B’, foreign currency subordinated at ‘BB-’ (BB minus), Individual at ‘D’ and Support at ‘3’. At the same time, Fitch Ratings (Thailand) has affirmed BAY’s National Long-term rating at ‘A-(tha)’ (A minus(tha)) with a Positive Outlook, National Short-term at ‘F1(tha)’ and National subordinated at ‘BBB+(tha)’.
The bank’s ratings reflect continued improvement in profitability, although provisioning risks could continue to affect profitability. The Long-term and Individual ratings remain constrained by the bank’s low reserve coverage and capital. Nonetheless, revenue growth, improving asset quality and warrant conversion should enable BAY to gradually strengthen its reserve coverage.
BAY reported a net income of THB4.7 billion in 2004, up from THB3.1bn in 2003 due mainly to higher loan growth, a further fall in funding costs and improved fee income. Net interest margins (“NIMs”) also improved to 2.5%, following the redemption of hybrids in March 2004. In 1Q05, BAY continued to report improved performance, with its net income rising to THB1.5bn from THB1.2bn in 1Q04, due largely to a further fall in funding costs and loan growth, as well as higher fee and non-recurring gains from investments.
BAY’s impaired loans stood at THB63.8bn at end-March 2005, down from THB67.8bn at end-2003, due to improved economic conditions and the bank’s debt restructuring efforts. BAY’s loan loss reserves (“LLRs”) at end-March 2005 totalled THB22bn. This equates to about 34.5% of impaired loans which appears significantly lower than other Thai banks, underlining the risks of further large provisioning. Improving collateral values and economic recovery may mitigate this risk to some degree. BAY attributes this difference to its lower level of impaired syndicated loans and a higher percentage of collateral-backed loans to small- and medium-sized businesses.
Following the redemption of hybrid capital in March 2004, the bank’s total capital fell to 10.5% of risk-weighted assets (“RWAs”), with Tier 1 capital declining to 6.1% at March 2005. While improving, its high net impaired loans/equity ratio of 120% underscores Fitch’s concerns over its capital buffer, which is significantly weaker than its peers. Earnings recovery and warrant conversion by its major shareholder over the next two to three years may help restore capital to a more appropriate level, although the resumption of dividends could offset this improvement
BAY was established in 1945 and is currently Thailand’s sixth-largest commercial bank, with 455 branches, a 9.2% share of the system’s loans and 9.6% of deposits. It has affiliates in finance, securities, insurance, fund management and leasing. The major shareholder, the Ratanarak family, has controlled the bank since the mid-1960s, and with related group holdings, currently holds about 36% of BAY’s shares and is involved in the board and management of the bank.
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.
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