Bangkok--7 Apr--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the rating of Kiatnakin Bank PLC (KK) and the ratings of KK’s current senior debentures at “A-”. At the same time, TRIS Rating has also assigned a “A-” rating to KK’s proposed up to Bt5,000 million senior debentures. The outlook remains “stable”. The ratings reflect the bank’s capable management team, its ability to diversify into new businesses to replace its fading distressed asset management business and its strong cushion of capital and allowances for loan loss that enables it to absorb risks from adverse changes in the banking business environment. The ratings also take into account KK’s universal banking status, which will provide it with better financial flexibility and long-term opportunities in commercial banking business. However, the ratings are constrained by KK’s limited franchise value compared with other well-established commercial banks, less favorable business environment, intensifying competition in the banking industry and rising problem loans in the real estate sector.
The “stable” outlook reflects the expectation that KK will be capable to sustain its profitability in the medium term. The rating outlook also reflects KK’s acceptable risk management system and sound capitalization that should protect the bank from any adverse change in the business environment.
In addition, KK’s new status as a universal bank has enhanced its financial flexibility and increased opportunities from the expanded scope of the banking business.
TRIS Rating reported that KK has moved to lending business since 2003 to replace its distressed loan management business, which will gradually wind down within the next two years. The bank had focused on real estate loans and hire purchase loans, which the bank has experience and managerial skill gained from distressed asset management. As of December 2005, KK’s hire purchase loans and real estate loans accounted for 51% and 38% of total outstanding loans, respectively. These loans have enabled KK to generate steady income and to sustain high yields. However, less favorable
economic and business factors have pressured KK’s asset quality of real estate and construction loans, leading to further deterioration in loan quality.
The bank’s ratio of classified loans (sub-standard, doubtful and doubtful loss) for hire purchase and real estate loans to total loans of each business increased to 4.8% and 28.6%, respectively, as of December 2005 from 3.8% and 21.3% as of December 2004. As KK engages in high risk/high return lending, especially residential project loans, its management has a policy to maintain strong cushions of capital and loan loss allowances. As of December 2005, KK’s non-performing assets (non-performing loans, troubled debt restructuring and property foreclosed) was 0.71 times of its capital fund and allowance for loan loss, which was lower than average of 1.32 times for all 14 Thai banks (including three new granted banks: ACL Bank PLC, TISCO Bank PLC and KK).