Bangkok--11 May--Fitch Ratings
Fitch Ratings has today upgraded the Long-term Foreign Currency Issuer Default Rating (“IDR”) of Bank of Ayudhya Public Company Limited (“BAY”) to ‘BB+’ Outlook Stable from ‘BB’, foreign currency subordinated debt rating to ‘BB’ from ‘BB-’ (BB minus), National Long-term rating to ‘A(tha)’ Outlook Stable from ‘A-(tha)’ (A minus(tha)) and National subordinated debt rating to ‘A-(tha)’ (A minus(tha)) from ‘BBB+(tha)’. Individual and Support ratings of ‘D’ and ‘3’, respectively, are affirmed. The upgrades primarily reflect the continued improvement in profitability. While provisioning risks remain, revenue growth and warrant conversion should enable BAY to gradually strengthen reserve coverage and capital adequacy.
The Outlook for the ratings is Stable given underlying profitability and asset quality should be maintained notwithstanding a more challenging operating environment in 2006. A further significant decline in impaired and restructured loans, and stronger reserve coverage and capital positions, will be necessary to support further improvement in the bank’s ratings. Given BAY’s deposit share and systemic importance in Thailand, there is a moderate probability of government support, should this be needed.
BAY reported net income of THB6.1 billion in 2005, significantly higher than the THB4.7bn seen in 2004, aided primarily by stronger loan growth, improved fee income, as well as higher gains from investments and sales of foreclosed properties. Its net interest margin (“NIM”) continued to rise to 2.7% in 2005 from 2.5% in 2004 following the redemption of hybrids in March 2004, loan growth and improved asset quality. Its ROAA and ROAE have improved steadily to 1% and 16.8% respectively in 2005. In Q106, BAY continued to report improved performance with net income rising to THB1.8bn from THB1.5bn in Q105 owing to loan growth and rising lending rates, although higher funding costs may see further margin improvement constrained.
Impaired loans totalled THB64.9bn or 14.3% at end-2005, down from THB65.6bn or 15.6% at end-2004 due mainly to bad loan write-offs. Loan loss reserves (“LLRs”) at end-2005 totalled THB21.4bn, or about 33% of impaired loans, still below most other Thai banks, underscoring the risks of further provisioning. BAY justifies this difference by highlighting its lower level of impaired syndicated loans and a higher ratio of collateral-backed loans to small and medium-sized businesses.
At end-2005, BAY’s total capital improved to 11% of risk-weighted assets (“RWA”) from 10.7% at end-2004 while with Tier 1 capital rose to 6.6% from 6.2% due mainly to earnings growth and the exercise of warrants, although the figures exclude H205 profits. Including this net income, the figures improve to approximately 11.6% and 7.2%, respectively. Although at 110.8% its net impaired loans/equity ratio remained very high, earnings recovery and warrant conversion by its major shareholder over the next two to three years should help restore capital buffers.
BAY was established in 1945 and is currently Thailand’s sixth-largest commercial bank, with 502 branches, a 9.2% share of the system’s loans and 9.6% of deposits. It has affiliates in finance, securities, insurance, fund management and leasing. The major shareholder, the Ratanarak family, has controlled the bank since the mid-1960s, and with related group holdings, currently holds about 37% of BAY’s shares and is involved in the board and management of the bank.
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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