Bangkok--27 Jul--Fitch Ratings
Fitch Ratings has today affirmed United Overseas Bank (Thai)’s (“UOBT”; formerly Bank of Asia) Long-term foreign currency Issuer Default Rating at ‘A-’ (A minus) with a Stable Outlook, Short-term foreign currency rating at ‘F2’, Individual rating at ‘C/D’ and Support rating at ‘1’. At the same time, Fitch Ratings (Thailand) Limited has affirmed UOBT’s National Long-term rating at ‘AA+(tha)’ with a Stable Outlook and National Short-term rating at ‘F1+(tha)’. The ratings of UOBT are contingent on United Overseas Bank of Singapore (“UOB”, rated ‘AA-’ (AA minus)) remaining the controlling shareholder.
In December 2005, Fitch upgraded the Long-term foreign currency IDR of UOBT to ‘A-’ (A minus) and its Support rating to ‘1’ following the completion of its merger with UOB Radanasin (“UOBR”). UOB has indicated that, as the majority shareholder, it would provide long-term capital, liquidity and operational support to UOBT as required. While restrictions on foreign ownership may see some dilution of UOB’s ownership after 2008, there is flexibility to minimise the impact by strengthening UOBT’s capital base before that to a level sufficient for long-term business expansion. Given UOB’s reputation and resources and close name association of UOBT with its parent, Fitch believes that there is an extremely high probability that parental support would be forthcoming, if necessary. As UOBT’s International and National debt ratings are based on UOB remaining the controlling shareholder, any change in UOB’s shareholding in UOBT and its commitment and support to UOBT could affect UOBT’s ratings. Since the foreign currency ratings of UOBT are now at the same level as the Country Ceiling, any downgrade of Thailand’s Country Ceiling or sovereign ratings will also have an impact on UOBT’s ratings.
UOBT reported a net profit of THB953.4 million in 2005, up from THB760.8m in 2004 due mainly to the release of reserves. Nonetheless, pre-provisioning profit (adjusted for non-recurring integration-related expenses) fell by 51.5% to THB951m in 2005 from THB2 billion in 2004. The fall reflected higher losses on the impairment of investments, the disruption to the bank’s operations by a change in ownership and the integration between BOA and UOBR. In H106, UOBT reported a net profit of THB918.8m, up from THB636.9m in H105 due to the consolidation of UOBR’s earnings in H106 and rising loan yields. The financial and operational support of UOB should help bolster UOBT’s performance in the medium term.
Impaired loans fell to THB17.4bn (11% of total loans) at end-March 2006 from THB19.8bn (16.6%) at end-2004. Loan loss reserves stood at THB11.1bn and covered 63.7% of impaired loans, which is reasonable compared with that of other Thai banks. Improved asset quality and a strengthening capital base saw UOBT’s ratio of net impaired loans to equity fall to 26.5% at end-March 2006 from 37% at end-2004. UOBT’s capital appears strong, with its Tier 1 ratio at 14.5% of risk-weighted assets and its total capital ratio at 16.6% at end-March 2006.
UOBT was established in 1939. ABN AMRO Bank NV (“ABN AMRO”) acquired a 75% stake in Bank of Asia (“BOA”) in 1998. In 2004, ABN AMRO sold its stake in BOA to UOB, which subsequently increased its holding in BOA to 97.5%. After the amalgamation of UOBR with BOA, UOB’s stake in BOA increased to 98.5%. UOBT is Thailand’s ninth-largest commercial bank, with a 3.1% share of loans and a 2.1% share of deposits at end-March 2006.
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.
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.