Bangkok--11 May--Fitch Ratings
Fitch Ratings has today upgraded the Long-term Foreign Currency Issuer Default Rating of Bangkok Bank (“BBL”) to ‘BBB+’ with a Stable Outlook from ‘BBB’, its Short-term foreign currency rating to ‘F2’ from ‘F3’, its subordinated debt rating to ‘BBB’ from ‘BBB-’ (BBB minus) and its Individual rating to ‘C’ from ‘C/D’. BBL’s Support rating is affirmed at ‘2’. Meanwhile, Fitch Ratings (Thailand) has assigned BBL a National Long-term rating of ‘AA(tha)’ with a Stable Outlook, a National Short-term rating of ‘F1+(tha)’ and a National subordinated debt rating of ‘AA-(tha)’ (AA minus(tha)).
The upgrades reflect continued improvements in the bank’s profitability and asset quality, as well as its solid capital and liquidity positions. BBL’s international ratings are currently capped by the sovereign’s Long-term Foreign Currency IDR of ‘BBB+’. Further improvement to BBL’s ratings would also require a further significant decline in impaired and restructured loans, as well as structural improvements in the Thai economy and banking system, including the regulatory and legal framework. In view of BBL’s size, strong institutional ties and systemic importance to the Thai financial sector and economy, Fitch believes there is a high probability the bank would receive state support should the need arise.
Since the 1997 crisis BBL’s internal restructuring has included branch network rationalisation, stronger risk management and improved customer segmentation, which are now yielding results. The bank’s financial performance has recovered significantly since 2003 and it is now focused on a new growth phase both domestically and regionally.
Net income rose to THB20.4 billion in 2005 from THB17.7bn in 2004, mainly due to the redemption of high-cost hybrids and rising loan yields, although net lending fell 2.6% as a result of bad loan write-offs and repayments. BBL’s net interest margin continued to widen, to 2.9% from 2.4%, while its cost-to-income ratio fell to 52.1% from 55.3%. In Q106, net income fell to THB5.2bn from THB6bn in Q105 but pre-tax income rose strongly to THB8bn from THB5.8bn due to loan growth; however, higher deposit rates and taxes may constrain further improvement in net income in 2006.
BBL’s debt restructuring, bad loan write-offs and the reclassification of Thai Petrochemical Industry debt to normal status following its restructuring led to impaired loans falling sharply to THB100.8bn at end-2005 (10.7% of total loans) from THB159.1bn at end-2004 (17%). The bank expects rising interest rates and higher oil prices to slow down debt restructuring in 2006. Nonetheless, it aims to reduce impaired loans to about 7.5% by end-2006 and 3% by end-2007. The planned transfer of impaired loans to the state-owned Asset Management Corporation should help accelerate this improvement.
Loan loss reserves fell to THB79.9bn at end-2005 from THB109.7bn at end-2004 due to write-offs but the coverage ratio improved to 79.3% from 69%. Restructured loans still pose provisioning risks but overall reserves appear reasonable. BBL’s ratio of net impaired loans to equity fell to 15.2% from 43.5%, reflecting strong recovery in capital buffers. At end-Q106 BBL’s Tier 1 capital stood at about 10.3% of risk-weighted assets and total capital at about 13.5%. With the inclusion of H205 and Q106 net profits, and deducting the dividend payable as approved by the shareholders’ meeting in April 2006, BBL’s Tier 1 capital and total capital would be about 11.5% and 14.8% respectively.
BBL is the largest bank in Thailand, with an 18% share of loans and 21% of deposits. It was established in 1944 by the Sophonpanich family, whose stake has fallen significantly since the 1997 financial crisis. BBL has 694 domestic and 20 offshore branches, mainly in Asia, as well as affiliates in finance, securities, insurance and fund management.
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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Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.