Bangkok--19 Oct--Fitch Ratings
Fitch has assigned the following ratings to Siam City Bank (“SCIB”): Long-term foreign currency Issuer Default rating (“IDR”) of ‘BB’, Short-term foreign currency rating of ‘B’, National long-term rating of ‘A-(tha)’ (A minus(tha)) and National Short-term rating of ‘F1(tha)’. The Outlook on the ratings is Stable. Fitch has also upgraded the bank’s Individual rating to ‘D’ from ‘D/E’ and affirmed its Support rating at ‘4’.
The agency notes that while the ratings reflect the improvement in SCIB’s underlying operating performance and balance sheet strength following its restructuring, they also take into consideration the bank’s still weak franchise, the uncertainty over the bank’s longer-term strategy, as well as its higher funding and operating costs.
The Thai central bank’s Financial Institution Development Fund (“FIDF”), which bailed out SCIB following the 1997 financial crisis, reduced its holding to 47.6% in 2004, and is likely to further reduce its stake. In the medium term, Fitch believes there is a limited probability of state support for SCIB. A clearer longer-term strategy and shareholding structure, as well as the strengthening of the bank’s franchise, risk controls and management could improve the ratings in the medium term. Financial performance should continue to improve as a result of loan growth, provided economic growth rebounds following the political crisis.
SCIB reported net income of THB6.3 billion in 2005, down slightly from THB6.4bn in 2004 due to non-recurring allowance for diminution in values of non-utilised properties and new reserves for contingent liabilities. Stripping out non-recurring items, net profit would have risen by 10.2%. In H106, net profit also fell slightly due to increased tax expenses, having used up tax benefits from losses carried forward. Pre-tax profit also declined as a result of non-recurring allowance for diminution in values of foreclosed properties following the replacement of the bank’s auditor in 2005, which led to a change in the appraisal methodology in H106. SCIB’s net interest margin has improved to 2.59% on an annualised basis in H106 from 2.1% in 2004 as a result of loan growth and the redemption of the remaining low-yielding AMC notes of Petchburi Asset Management Company (“PAM”). The bank’s cost/income ratio has risen from 58.8% in 2005 to 64.2% in H106, a higher figure than most of its peers due partly to cost overhang from the merger with the defunct Bangkok Metropolitan Bank (“BMB”).
While SCIB’s asset quality appears to have improved relative to its peers, this is mainly due to a government-funded transfer of most of its bad assets to PAM in 2001. Future asset quality trends remain dependent on the credit strategy and risk appetite of the bank, which still appears unclear. Impaired loans rose slightly to THB7.8bn at end-June 2006 although this is still relatively low at 3.4% of total loans. Reserve coverage of 113.9% of impaired loans appears strong.
SCIB’s capital position appears strong, with a Tier 1 capital ratio of 12.1% of risk-weighted assets at end-June 2006, although loan growth and dividend payouts may see this weaken over the next three years.
SCIB was established in 1941 and nationalised in 1998. In April 2002, it merged with BMB under the direction of the central bank’s FIDF. At end-June 2006, the bank had 6,700 employees and 396 branches nationwide. SCIB currently commands about 5% to 6% loan and deposit market share. It also has affiliates in insurance, securities, asset management and leasing businesses.
Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/59
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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