Bangkok--13 Jul--Fitch Ratings
Fitch Ratings today affirmed the international Long-term debt rating of ‘B+’ assigned to TMB Bank’s (“TMB”) Hybrid Tier 1 securities following the Bank of Thailand’s (“BOT”) revised guidelines governing interest deferral conditions of such securities in June 2006 as the hybrid rating is already sufficiently notched from the senior rating.
The revised guidelines amending the February 2006 regulations - state that the distribution of returns on Hybrid Tier 1 securities may be made from profits or retained earnings. However, if a commercial bank has a non-profit year, the distribution of returns can be made only if it is approved by the BOT on a case-by-case basis. The BOT will take into consideration the commercial bank’s financial status such as the status of its Tier 1 capital, its ability to be profitable and the level of its retained earnings. Fitch notes that TMB currently has large retained losses of THB45.7 billion, which suggests that should it report a loss in any six-month period, it might not be permitted to pay interest on its hybrid.
In March 2006, Fitch affirmed TMB’s Long-term foreign currency Issuer Default Rating (“IDR”) at ‘BB+’ with a Positive Outlook, Short-term foreign currency rating at ‘B’, foreign currency subordinated debt rating at ‘BB’, Individual rating at ‘D’ and Support rating at ‘3’ following the bank’s announcement of a planned THB12bn rights issue. TMB’s planned capital increase and the support of its 16.1% strategic shareholder, Development Bank of Singapore (“DBS”, rated ‘AA-’ (AA minus)/Stable/‘F1+’), should help strengthen the bank’s financial position in the medium term, notwithstanding a weakening operating environment in 2006. Nonetheless, while the hybrid was issued in May 2006, the rights issue has been delayed due to poor market conditions.
Investors should note that given TMB’s low loan loss reserve coverage of impaired loans (44% at end-March 2006) and its weak profitability, the risk of reporting a loss is not insignificant, which under the revised guidelines could result in non-payment of interest, depending on how stringent the BOT decides to interpret the guidelines.
Contacts: Chaiyapat Paitoon; Vincent Milton, Bangkok +662 655 4759/4762; David Marshall, Hong Kong +852 2263 9963
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