Bangkok--15 Mar--Fitch Ratings
Fitch Ratings has today affirmed TMB Bank Public Company Limited’s (“TMB”) ratings on the bank’s announcement of its rights issue. The ratings are affirmed as follows: Long-term foreign currency rating at ‘BB+’ with a Positive Outlook, Short-term foreign currency rating at ‘B’, foreign currency subordinated debt rating at ‘BB’, Individual rating at ‘D’ and Support rating at ‘3’. At the same time, Fitch Ratings (Thailand) has affirmed TMB’s National Long-term rating at ‘A(tha)’ with a Positive Outlook, National Short-term rating at ‘F1(tha)’ and National subordinated debt rating at ‘A-(tha)’ (A minus(tha)).
The ratings affirmation followed the bank’s announcement of its rights issue, which, if successfully completed, should help strengthen its financial position and result in an upgrade of its ratings. TMB’s ratings remain constrained by its currently low level of reserves and capital and weak profitability and franchise relative to its larger peers. TMB’s planned capital increase and the support of its 16.1% strategic shareholder, Development Bank of Singapore (“DBS”, rated ‘AA-’ (AA minus)/Stable/‘F1+’), should help strengthen the bank in the medium-term, notwithstanding a weakening operating environment in 2006.
TMB plans to raise THB20 billion of capital in 2006, THB12bn via a rights issue and a further THB8bn in either Hybrid Tier 1 or Upper Tier 2 capital within six months. DBS and other key shareholders such as the Ministry of Finance (with 31%) have indicated their support to the capital increase.
While improving, TMB’s underlying profitability and capital position remains relatively weak when compared with other big Thai banks. Its asset quality and reserve coverage deteriorated while its cost to income ratio still remains high, trends which were accentuated by the merger with the Industrial Finance Corporation of Thailand (“IFCT”). The weakening operating environment may also impact the bank’s loan growth and profitability in 2006.
Underlying operating revenues are recovering, although profitability is still below the peer average, with a net interest margin of only 2.12% in 2005, reflecting the higher funding costs of IFCT and still weak underlying loan growth. Net income improved to THB7.8 billion in 2005 - mainly because of lower provisioning. The refinancing of IFCT’s higher cost wholesale funding, together with the strengthening of the bank’s franchise should result in higher revenues and improved profitability in the medium term.
At end-2005, TMB reported impaired loans of THB77.4bn, or about 14% of total loans, up from THB66.4bn (or 13%) at end-2004, due mainly to the reclassification of restructured loans in H105, although its impaired loans started to fall in H205. Loan loss reserves stood at THB35bn, which equated to 45 % of impaired loans, down from THB44.3bn or 67% at end-2004. Relatively weak reserve coverage and the high level of restructured loans still presents some risk of further provisioning. TMB’s net impaired loans/equity stood at 83% at end-2005, up sharply from 49%, reflecting its weak reserve levels.
At end-2005, TMB’s Tier 1 capital stood at 6.2% of risk-weighted assets (“RWA”) and total capital was 9% of RWA. These ratios remain weaker than those of TMB’s peers, although the planned capital increase should help the bank fund growth and improve reserve coverage.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963