Bangkok--8 Mar--Fitch Ratings
Fitch Ratings has today assigned a National Long-term rating of ‘AA+(tha)’ to Krung Thai Bank Public Company Limited’s (“KTB”, rated National Long-term ‘AA+(tha)’) senior unsecured debenture of THB6 billion with a maturity of three years. The Outlook for 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 an 18% market share with the Financial Institutions Development Fund (“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. Fitch believes the likelihood of long-term government support 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. KTB’s management is now more focused on improving risk management, as well as changing the bank’s culture and organisation to be more commercially-oriented, and shifting to a retail banking focus.
Underlying performance remains strong with net profit rising to THB13bn in 2005 from THB11.1bn in 2004 and net interest margins improving to about 3.4%, despite more moderate loan growth. With rising funding costs and the slower pace of loan growth due to the weakening economic and political environment, the outlook for 2006 is more challenging. Nonetheless, the bank’s performance should remain generally stable as medium-term economic fundamentals remain strong.
Due to bad loan write-offs in H204 and the sale of impaired loans to the government’s Asset Management Corporation (“AMC”) in H105, KTB’s impaired loans have since fallen to THB99.1bn or 11.1% at end-2005, although new impaired loans are still rising. The loan reclassification in 2004 and the transfer of loan loss reserves alongside the sale of impaired loans to AMC in 2005 saw KTB’s reserve coverage fall to 41.5% at end-2005, which appears low, implying further provisioning risk. This is underlined by KTB’s high net impaired loans to equity ratio of 70.2% at end-2005.
At end-2005, KTB’s Tier 1 capital ratio stood at 8.5% of risk-weighted assets while its total capital ratio stood at 12.1%. Fitch expects that the recovery in earnings 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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