Bangkok--8 Nov--Moody's
Moody's Investors Service has affirmed the Bank of Ayudhya Public Co Ltd's ("BAY") bank financial strength rating of
"E+". The affirmation follows the review of BAY's ratings for possible upgrade as announced on May 31, 2006. The rating continues to be on review for possible upgrade.
"The affirmation of BAY's rating reflects the expectation that the acquisition of a strategic stake in the bank by GE Group-owned GE Capital International Holdings Corporation ("GECIH") could bring notable benefits to the bank," says Leo Wah, a Moody's Assistant Vice President/analyst, adding, "The coup in Thailand in late September this year delayed GECIH's
subscription deadline by three months, keeping us from concluding the rating review within our normal time frame."
According to lead analyst Wah, expectations of GECIH's acquisition of 1,391 million shares in BAY by Jan 10, 2007, and the exercise of existing shareholders' outstanding warrants (which are currently deep in the money and will expire in August 2008), could double the bank's tier-1 capital base from its current level of approximately Bt36.8 billion. This alone
would restore BAY's economic solvency and largely restore its capital adequacy, even stressed for possible additional loan losses.
The increase in regulatory capital to approximately 17% would allow BAY to strengthen its balance sheet by raising provisions against non-performing loans ("NPL"), while also allowing the bank to write off bad debts more aggressively and support its strategy to expand its retail banking business. The bank's balance sheet is among the weakest in Thailand, with a 13% NPL ratio and 33% loan loss reserve - both significantly worse than the average for Thailand's rated commercial
banks.
With only 14% of BAY's loan portfolio in retail banking, GE Group's individual business expertise in product design, system, collection, and most importantly risk management would certainly support the bank's strategy to seek a more balanced and healthier loan portfolio. Moody's also expects GE Group's best practice in risk management to be adopted.
"A possible upgrade of BAY's rating would most likely hinge on the completion of the GECIH investment," adds Wah. "While BAY's creditworthiness has shown improvement from its previously weakened state, these slow developments alone are not sufficient to justify an upgrade of the rating for now, especially given that the coup may slow the economy and BAY's improving financial fundamentals."
BAY, headquartered in Bangkok, is Thailand's sixth largest bank by deposits assets. As of June 30, 2006, it had total assets of Baht 646 billion (US$ 17 billion).
Hong Kong
Leo Wah, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Singapore
Beatrice Woo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308