Bangkok--25 Jul--Fitch Ratings
Fitch Ratings has today revised the rating Outlook on Kiatnakin Bank (“KK”) to Negative from Stable. At the same time, the agency has affirmed KK’s National Long-term rating at ‘BBB+(tha)’ and National Short-term rating at ‘F2(tha)’.
The Outlook revision reflects Fitch’s concerns on the deterioration of the bank’s asset quality as a result of its high exposure to property developers and a weakening operating environment in Thailand. The agency notes that these risks are offset to some degree by KK’s niche focus, its strong capital and profitability, although higher provisioning could affect the latter.
KK reported a net profit of THB2.4 billion in 2005, up from THB2.2bn the prior year, due to high loan growth; particularly auto hire purchase which grew 30.2% in 2005, and residential project and construction lending which grew 17.4%. The bank also registered higher gains from its distressed asset management business. KK’s net profit rose to THB1.2bn in H106 from THB1.1bn in H105 due to loan growth. Nonetheless, its net interest margin fell to 5.6% (annualised) in H106 from 6.5% in 2005, due to intensified competition and rising funding costs.
At end-March 2006, residential project loans and auto hire purchase loans made up 36.8% and 52.4% of KK’s loan portfolio, respectively. Impaired loans rose to THB8.6bn or 14.5% of total loans at end-March 2006 from THB6.2bn or 12.6% at end-2004, due to the relapse of restructured loans and new impaired loans. Loan loss reserve coverage fell to 47.4% of impaired loans at end-March 2006 from 57.9% at end-2004, mainly due to higher non-performing loans (“NPLs”). Very high exposure to property developers raises the risks of additional provisions with NPLs of the property development and construction sector rising to 30.7% at end-March 2006 from 21.3% at end-2004. NPLs in the auto hire purchase sector also rose to 4.4% at end-March 2006 from 3.8% at end-2004.
Due to weak capital market conditions and KK’s declining brokerage market share, its brokerage fees contribution fell to 5.2% of KK’s total revenue in 2005 from 9% in 2004. The bank’s revenue from its distressed asset management business, which accounted for about 13% of total revenue in 2005, is expected to continue to decline as a proportion of overall revenues.
The bank mobilises its funding primarily from wholesale high net-worth depositors. KK’s liquid asset and investment accounted for 15.42% of deposit, which is low compared to other banks, while its loans to deposit ratio appeared high at 129% at end-March 2006, underlining its relatively weaker funding and liquidity profile. KK’s Tier 1 capital ratio stood at 23.3% of risk-weighted assets at end-March 2006, which appears high, although appropriate, given its small size, high growth and large exposure to riskier credit segments.
KK was established as a finance company in 1971 and a commercial bank in October 2005. KK’s primary business focus is on auto hire purchase lending while the bank’s other businesses include residential project lending, distressed asset management and the brokerage and investment banking businesses. The bank is controlled by the Wattanavekin family, which holds a significant stake and is involved in the management of the bank. The agency notes that state support should not be relied upon given KK’s very small deposit market share and its lack of strong institutional shareholders.
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.
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