Bangkok--1 Jun--Fitch Ratings
Fitch Ratings has today affirmed Siam Commercial Bank’s (“SCB”) Long-term foreign currency Issuer Default Rating (“IDR”) at ‘BBB+’ with a Stable Outlook, Short-term foreign currency at ‘F2’, Individual at ‘C’, Support at ‘2’ and foreign currency subordinated debt rating at ‘BBB’. At the same time, Fitch Ratings (Thailand) has also affirmed SCB’s National Long-term rating at ‘AA(tha)’ with a Stable Outlook, National Short-term rating at ‘F1+(tha)’ and National subordinated debt rating at ‘AA-(tha)’ (AA minus (tha)). SCB’s ratings reflect a sustained recovery in underlying earnings and profitability on the back of an improvement in asset quality and loan growth. The bank’s reserve and capital positions have also strengthened. SCB has one of the strongest universal banking franchises and management teams in Thailand.
Given the support of the Crown Property Bureau (“CPB”), the Thai Crown’s investment agency, SCB’s single largest private shareholder, as well as the past and current support of the Ministry of Finance (“MOF”), SCB’s large share of deposits and its importance to the Thai economy, Fitch believes there is a high probability that the bank would receive state support should the need arise.
SCB’s debt ratings are currently capped by the sovereign rating. Further improvement in its 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.
SCB has benefited from the results of its reform efforts since the 1997 crisis, a strong corporate and retail franchise and a supportive economic environment. As the largest private mortgage lender in Thailand, it has also benefited from the recovery in the residential property market. The acquisition of Siam Panich Leasing (“SPL”) should also enhance SCB’s retail franchise.
In Q106, SCB’s net profit fell to THB4.3bn from THB5bn in Q105 due mainly to increased tax expenses having used up its tax benefits on losses carried forward, however, its underlying performance continued to improve, with pre-tax profit rising to THB5.7bn in Q106 from THB5.0bn in Q105. The weakening operating environment and higher funding costs may constrain further margin improvement, although SCB is likely to have a greater stability in terms of earnings momentum given its size and franchise.
SCB’s impaired loans amounted to THB61.9bn, or 9.8% of loans, at end-March 2006. The bank is targeting impaired loans of less than 7% by year-end. Loan loss reserves fell to THB52.2bn after write-offs, and covered 84.3% of impaired loans, which remains one of the highest loss coverage ratios amongst Thai banks. Net impaired loans/equity fell to 9.6% at end-March 2006, indicating strong reserve and capital positions.
At end-March 2006, the bank’s Tier 1 capital stood at THB72.1bn, or 11.5% of total risk weighted assets, while total capital amounted to THB91.6bn, or 14.6%, which appears relatively strong.
SCB, established under the Royal Charter in 1904, is Thailand’s oldest and third-largest bank with approximately a 13% share of loans and a 12% share of deposits at end-March 2006. The Crown Property Bureau holds a 23.72% stake in the bank. SCB has leading affiliates in consumer auto finance, investment banking, fund management and insurance.
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.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contact: Chaiyapat Paitoon, Sorasit Vanaprasert, Vincent Milton, Bangkok +662 655 4755