Bangkok--Dec 19--Fitch Ratings
Fitch Ratings has today upgraded Bangkok-based United Overseas Bank (Thai) Public Company Limited’s (“UOBT”) Long-term foreign currency rating to ‘A-’ (A minus) with a Stable Outlook from ‘BBB+’, and Support rating to ‘1’ from ‘2’. At the same time, Fitch has also affirmed the remainder of UOBT’s ratings at Short-term foreign currency ‘F2’ and Individual ‘C/D’. At the same time, Fitch Ratings (Thailand) has affirmed National Long-term ‘AA+(tha)’ with a Stable Outlook, and National Short-term rating of ‘F1+(tha)’. Fitch has also withdrawn UOB Radanasin Bank’s (“UOBR”) Support rating of ‘2’ following the amalgamation of the bank with UOBT.
UOBT’s credit ratings are based on Singapore’s United Overseas Bank (“UOB”, rated ‘AA-’ (AA minus)/Stable) remaining the controlling shareholder. Any change in UOB’s shareholding in UOBT and its commitment and support given to UOBT could impact the ratings of UOBT. Since the foreign currency ratings of UOBT are now at the same level as the country ceiling, any downgrade of Thailand’s country ceiling - which is one rating level above the sovereign rating - will also have an impact on the ratings of UOBT.
UOBT, previously Bank of Asia (“BOA”), was established in 1939. In 2004, ABN AMRO sold its stake in BOA to UOB. UOBR and BOA completed their integration on 28 November 2005. BOA raised additional capital of THB16.7 billion via a rights issue - most of which were taken up by UOB - to purchase UOBR from UOB. After the recent capital increase, UOB’s stake in BOA increased slightly to 98.5%. The merged entity has been renamed United Overseas Bank (Thai) Public Company Limited, resulting in a strong name association with the parent. UOBT is now the ninth-largest commercial bank in Thailand, with total assets of THB206bn and a loan and deposit market share of approximately 3%. The merger should produce cost and business synergies while the strong financial and operational support of UOB should bolster UOBT’s financial position in the medium-term. While restrictions on foreign ownership may see some dilution in its parent ownership after 2008, there is flexibility to strengthen UOBT’s capital base before that to a level sufficient for long-term business expansion in order to minimise such dilution. Given the reputation and resources of UOB, Fitch believes that there is a high probability that support would be forthcoming, if necessary.
In 2004, UOBT’s earnings were constrained by moderate loan growth and its bad-debt overhang. The bank’s operations were also affected by a change in ownership. UOBT made additional provisioning due to a re-evaluation of impaired loans which affected the bank’s profitability. The bank’s net profit fell to THB761 million in 2004 from THB1.8bn the prior year. In the first nine months of 2005, net profit rose to THB854.2m compared to THB495m from the same period a year ago, largely due to lower funding costs and smaller provisions. The bank’s net interest margin (“NIM”) has gradually improved since the crisis, to 2.8% on an annualised basis in the first nine months of 2005 from a low of 0.9% in 1999.
UOBT’s impaired loans fell to THB17bn (or 14.4% of total loans) at end-September 2005 from THB19.8bn (16.7%) at end-2004. Loan loss reserves stood at THB12.1bn at end-September 2005, down from THB14bn at end-2004. This equates to 70.7% of remaining impaired loans, which appears reasonable when compared with other Thai banks. An improvement in asset quality together with a strengthening capital base saw UOBT’s ratio of net impaired loans to equity fall to 31.3% at end-September 2005. UOBT’s capital position appears strong, with its Tier 1 ratio at 12.7% of risk-weighted assets (“RWA”) and total capital ratio at 15.2% at end-September 2005.
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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