Bangkok--10 Jul--Fitch Ratings
Fitch Ratings has today upgraded the Individual rating of Krung Thai Bank Public Company Limited (“KTB”) to ‘C/D’ from ‘D’. The agency has also affirmed KTB’s Long-term foreign currency Issuer Default Rating at ‘BBB+’ with a Stable Outlook, Short-term foreign currency rating at ‘F2’, foreign currency subordinated debt rating at ‘BBB’ and Support rating at ‘2’. At the same time, Fitch Ratings (Thailand) Limited has affirmed KTB's National ratings at Long-term ‘AA+(tha)’, Short-term ‘F1+(tha)’ and National subordinated debt rating at ‘AA(tha)’. The Outlook on all the ratings is Stable.
The rating upgrade reflects the bank’s improved financial position over the past two years. Fitch notes that KTB’s ratings are underpinned by strong government ownership and support, as well as improving financial strength. Although government ownership and control provide support to the Long-term debt ratings, these factors have tended to weaken KTB’s stand-alone financial performance. KTB is the second-largest Thai bank with an 18% market share with the Financial Institutions Development Fund (“FIDF”) holding 56.4% of its shares. Given KTB’s size and importance to the financial system and economy, as well as its state ownership and control, Fitch believes that there is a high probability that the bank would receive state support, if necessary. The government is likely to retain a majority stake for the foreseeable future.
Over the past two years, KTB’s underlying operating performance has improved significantly. It reported a net profit of THB13 billion in 2005, up from THB11.1bn the prior year, despite a significant increase in its tax expenses in 2005 as it has used up its tax benefits on losses carried forward. KTB’s pre-tax profit rose more sharply to THB17.3bn from THB11.1bn the prior year due mainly to improved interest income, lower funding costs and smaller provisions. In Q106, net profit continued to improve to THB4.8bn from THB4.3bn in Q105 mainly as a result of rising loan yields, improved fee income and higher gains on investments. These factors also helped the bank’s net interest margin improve to 3.4% in 2005 and to an annualised 3.9% in Q106 from 2.9% in 2004. While the operating environment for 2006 has deteriorated significantly due to slower economic growth and political turmoil, KTB’s performance should generally remain stable.
Since a large loan reclassification in Q204, KTB's impaired loans have fallen to THB99.1bn (11.1%) at end-2005 and THB97.2bn (10.9%) at end-March 2006 from THB123.3bn (14.5%) at end-2004 on the back of its debt restructuring effort, bad loan write-offs and sale of impaired loans to the government's AMC. While reserve coverage has fallen to 38.8% at end-March 2006, following the loan reclassification in 2004 and bad loan write-offs, additional provisioning should be absorbed by the recovery in earnings. The loan re-classification ordered by the BOT prompted KTB to review its risk-management systems. This also resulted in a management shake-up. Management is now focused on improving the bank’s culture and organisation to be more commercially-oriented, and on shifting its focus to retail banking, the benefits of which are likely to become more visible in the medium term. Mortgage and personal loans now made up about 16% of the bank’s loan book.
At end-March 2006, KTB’s Tier 1 capital ratio stood at 8.3% of risk-weighted assets while total capital ratio stood at 11.9%. Earnings recovery should help underpin capital adequacy.
Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963
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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