Bangkok--12 Jul--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) has today assigned a National Short-term rating of ‘F1+(tha)’ to Siam Commercial Public Company Limited’s (“SCB”, rated ‘AA(tha)’) unsecured, unsubordinated debenture programme of up to THB40 billion with a maturity of no more than 270 days to be issued in several tranches over the next three years. The rating Outlook for SCB is Stable.
The debt ratings reflect a sustained recovery in SCB’s 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.
Fitch believes there is a high probability that the bank would receive state support should the need arise, 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.
SCB’s international Long-term Issuer Default Rating (“IDR”) of ‘BBB+’ is currently capped by the sovereign rating. Further improvement in its international and national debt ratings would also require a further significant decline in its impaired and restructured loans, as well as structural improvements in the Thai economy and its banking system, including the regulatory and legal framework.
SCB has benefited from its reform efforts since the 1997 financial crisis, a strong corporate and retail franchise and a supportive economic environment. As the largest private mortgage lender in Thailand, SCB has also benefited from the recovery in the residential property market. The acquisition of Siam Panich Leasing (“SPL”, rated “A(tha)/Stable) 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 as the bank has used up its tax benefits on losses carried forward. Fitch, however, notes that its underlying performance continued to improve, with pre-tax profit rising to THB5.7bn in Q106 from THB5.0bn in Q105. The agency warns that 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 overall performance 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 due to write-offs, and equal to 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 its total capital amounted to THB91.6bn, or 14.6% of total risk-weighted assets, 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 CPB holds a 23.72% stake in the bank. SCB has leading affiliates in consumer auto finance, investment banking, fund management and insurance.
CONTACTS: Chaiyapat Paitoon, Sorasit Vanaprasert, Vincent Milton, Bangkok +662 655 4755
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.
National Short-term ratings: ‘F1(tha)’ indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in Thailand. Under Fitch’s Thai national rating scale, this rating is assigned to the "best" credit risk relative to all others in Thailand and is normally assigned to all financial commitments issued or guaranteed by the Thai government. Where the credit risk is particularly strong, a "+" is added to the assigned rating.
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