Bangkok--4 Sep--Fitch Ratings
Fitch Ratings has today affirmed Kasikornbank Public Company Limited’s (“KBANK”) foreign currency Issuer Default rating (“IDR”) at ‘BBB+’ with a Stable Outlook, Short-term foreign currency at ‘F2’, Individual at ‘C’ and Support at ‘2’. Its foreign currency subordinated debt is affirmed at ‘BBB’. At the same time, Fitch Ratings (Thailand) has affirmed KBANK’s National ratings at Long-term ‘AA(tha)’ with a Stable Outlook, Short-term ‘F1+(tha)’ and its subordinated debt at ‘AA-(tha)’ (AA minus (tha)).
The IDR and the Short-term and Individual ratings reflect the sustained improvement in the bank’s underlying profitability, asset quality and capital and its strong domestic banking franchise in middle market, corporate and retail banking, as well as its good management track record. The Support rating factors in a high probability of government support due to its systemic importance. KBANK’s ratings are currently capped by the sovereign rating ‘BBB+’. Further improvement in its ratings would also require a further significant decline in impaired and restructured loans, as well as structural improvements in the Thai economy and banking system, including the regulatory and legal framework.
In 2005, KBANK continued to reform its organization and business lines, as well as strengthen its risk management system with an aim at effectively providing full range of financial services to its customers. In 2006, it specifically launched projects to enhance customer database, sales, services and IT platform, as well as strengthen its distribution channels.
KBANK reported a net profit of THB14 billion in 2005, down from THB15.4bn in 2004, due to increased tax expenses. However, its underlying performance remained strong, with pre-tax profit rising to THB18bn from THB15.5bn. In H106, KBANK’s net income fell to THB7.2bn from THB7.7bn in H105, due to higher provisions and rising operating expenses as a result of investments in ongoing reform projects. Nonetheless, KBANK’s pre-provisioning profit continued to improve by 10% in H106, due to loan growth, rising loan yields and improved fee income. Its net interest margin rose to 4.1% on an annualised basis in H106 from 3.7% in 2005.
KBANK’s impaired loans fell to 8.7% of gross loans at end-June 2006 from 9.1% at end-2005. Loan loss reserves also declined to THB36.1bn due to write-offs, equating to about 65.8% of the remaining impaired loans. Its net impaired loans/equity ratio fell to 23.1% at end-June 2006 from 26% at end-2005.
At end-June 2006 the bank’s Tier 1 capital stood at 10.5% of total risk-weighted assets, while total capital stood at 15.6%, which appears relatively strong. Capital should remain strong on the back of solid earnings, offsetting the impact of dividend and asset growth.
KBANK, established in 1945 by the Lamsam family, is Thailand’s fourth-largest commercial bank, with a 12% share of deposits and loans. The Lamsam Group remains the bank’s single largest shareholder, although its stake has been significantly diluted to less than 5% since the 1997 crisis.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.