Bangkok--Nov 18--Fitch Ratings
Fitch Ratings has today affirmed Krung Thai Bank Public Company Limited’s (“KTB”) International ratings at Long-term foreign currency ‘BBB+’, Short-term foreign currency ‘F2’, Individual ‘D’ and Support ‘2’. KTB’s foreign currency subordinated debt rating was also affirmed at ‘BBB’. At the same time, Fitch Ratings (Thailand) Limited has affirmed KTB’s National ratings at Long-term ‘AA+(tha)’, Short-term ‘F1+(tha)’ and National subordinated debt rating at ‘AA(tha)’. The Outlook on all the ratings is Stable.
Fitch notes that KTB’s ratings are underpinned by strong government ownership and support, as well as improving financial strength. Although government ownership and control provide support to the Long-term debt ratings, these factors have tended to weaken KTB’s stand-alone financial performance. KTB is the second-largest Thai bank with a 19% market share with the FIDF holding 56.4% of its shares.
Given KTB’s size and importance to the financial system and economy, as well as its state ownership and control, Fitch believes that there is a high probability that the bank would receive state support should the need arise. KTB’s debt ratings were upgraded in May 2005 owing to the sovereign upgrade then and Fitch’s reassessment of the likelihood of long-term government support as it appears probable that government ownership will remain at at least 51% for the foreseeable future.
The Bank of Thailand’s (“BOT”) direction to KTB to improve its loan classification criteria in mid-2004 resulted in a sharp increase in impaired loans in 2Q04, although the impact on profitability was not material. This prompted KTB to review its risk management systems and resulted in a management shake-up. Management is now more focused on improving risk management, as well as the bank’s culture and organisation to be more commercially-oriented, and shifting to a retail banking focus.
After a solid 2004, in the first nine months of 2005 (“9M05”), net profit continued to rise to THB12.2 billion from THB10.6bn in 9M04 and net interest margin to about 3.3%, despite more moderate loan growth. With rising funding costs and moderating loan growth due to a weakening in the Thai economy, the outlook for the next year is more challenging.
The large loan reclassification in 2Q04 highlighted Fitch’s concerns about disclosure and asset quality weakness at KTB. Due to bad loan write-offs in 2H04 and the sale of impaired loans to the government’s Asset Management Corporation (“AMC”) in 1H05, KTB’s impaired loans have since fallen to THB116.8bn or 13.2% at end-June 2005, although new impaired loans are still rising. The loan reclassification saw KTB’s reserve coverage fall from 72.4% at end-March 2004 to 51.4% at end-2004. Due mainly to the transfer of loan loss reserves alongside the sale of impaired loans to AMC, the bank’s reserve coverage has declined further to 44% at end-June 2005, which appears low, implying further provisioning risk. This is underlined by KTB’s high net impaired loans to equity ratio of 84.2% at end-June 2005.
At end-June 2005, KTB’s Tier 1 capital ratio stood at 7.9% of risk-weighted assets while its total capital ratio stood at 11.5%. Earnings recovery should help underpin capital adequacy, although further provisioning, dividend payouts and asset growth may see capital adequacy ratios fall over the next two years.
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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