Bangkok--Aug 9--Fitch Ratings
Fitch Ratings, the international ratings agency, has today affirmed BankThai Public Company Limited’s (“BT”) Support rating at ‘4’.
The rating reflects Fitch’s view of a limited probability of state support for BT over the long-term. This is because the government’s stake in BT is only temporary; it has already reduced its holdings to below 50%, and may reduce this further. The agency also notes that further dilution of government ownership could affect BT’s Support rating.
While there has been some improvement in BT’s financial position following the government-funded transfer of most of its bad loans and recapitalisation, BT still faces the challenge of establishing a viable wholesale or retail banking business in an over-served sector. Initially, BT appeared set to build a wholesale banking franchise only, but it is now also planning to build retail operations.
BT reported a net profit of THB545.7 million in 2004, recovering from a net loss of THB3.9 billion in 2003, due mainly to higher loan growth, lower funding costs and the absence of provisioning charges. In H105, BT reported improved performance with net profit rising to THB336m (unaudited) from THB213.1m in H104. Nonetheless, BT’s underlying operating performance still remains weak, reflecting a low loan/deposit ratio and the burden of low yield on servicing the bad assets.
In 2001, the central bank’s Financial Institutions Development Fund (“FIDF”) entered into a loss/gain sharing arrangement with BT for a pool of THB197.5bn impaired assets - the covered asset pool (CAP) - against which provisions of THB112bn were set aside. The terms of the agreement require that BT shares 5% of any additional gains or 15% of any additional losses. Impaired assets with a book value of THB98.2bn were subsequently transferred to the government-owned TAMC, of which about THB82.4bn were covered under the CAP. In exchange, BT received FIDF-guaranteed TAMC bonds paying interest at the average deposit rate of major banks. At end-March 2005, CAP loans that were still on BT’s books amounted to THB56.6bn, with non-CAP loans amounting to approximately THB77.3bn.
BT’s loss/gain sharing arrangement with the FIDF will end in January 2006. The recovery rate on the settled CAP assets was 50.5% while BT estimates the final average recovery rate on total CAP assets at around 47%, higher than the 43% implied by the existing notional provisions, and hence it should report a small gain.
BT’s impaired loans (excluding CAP loans) rose slightly to THB7.9bn at end-March 2005, after falling to THB7.6bn at end-2004 from THB9.2bn at end-2002. Non-CAP impaired loans were 10.3% of non-CAP loans. Non-CAP loan loss reserves of around THB6.5bn provided coverage of 82.2%, which appeared strong, although restructured loans were high, posing the risk of further provisioning.
Equity to assets appeared low at 3.36% at end-March 2005, due mainly to the inclusion of CAP assets. Nonetheless, Tier 1 capital equated to 10.3% of risk-weighted assets (as this excludes CAP loans), while the total capital ratio was 10.2%. Fitch says while these adjusted ratios appear adequate, this largely reflects the loss-sharing agreement with the FIDF and TAMC, which is still subject to review by the Ministry of Finance. Fitch cautions that a change in the terms of the agreement as well as continued weak profitability could bring pressure to bear on BT’s capital.
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Contact:
Chaiyapat Paitoon, Vincent Milton, Bangkok
+662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963. End.