Bangkok--8 Dec--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the ratings of Kiatnakin Bank PLC (KK) and KK’s senior debentures at “A-” with “stable” outlook. The ratings reflect the bank’s capable management team, its ability to diversify into new businesses to replace its fading distressed asset management business and its strong cushion of capital and allowances for loan loss that enables it to absorb risks from adverse changes in the banking business environment and from deteriorating asset quality. The ratings also take into account KK’s universal banking status, which will provide it with better financial flexibility and long-term opportunities in commercial banking business. However, the ratings are constrained by KK’s limited franchise value compared with other well-established commercial banks, less favorable business environment, intensifying competition in the banking industry and rising problem loans in the real estate sector.
The “stable” outlook reflects the expectation that KK will be capable to sustain its profitability and strong cushion of capital fund and allowance for loan loss against bad debts in the medium term. The rating outlook also reflects KK’s acceptable risk management system, its proven track record and its sufficient capital base, which will help the bank mitigate future downside risks from uncertain economic and business environment.
TRIS Rating reported that KK has moved to lending business since 2003 to replace its distressed loan management business, which will gradually wind down within the next two years. The bank had focused on real estate loans and hire purchase loans, which the bank has experience and managerial skill gained from distressed asset management. As of June 2006, KK’s hire purchase loans and real estate loans accounted for 55% and 34% of total outstanding loans, respectively. These loans have enabled KK to generate steady income and to sustain high yields. However, uncertain economic and business factors have pressured KK’s asset quality of real estate and construction loans, leading to further deterioration in loan quality. The bank’s ratio of classified loans (sub-standard, doubtful and doubtful loss) for hire purchase and real estate loans to total loans of each business increased to 5.1% and 31.8%, respectively, as of September 2006 from 3.7% and
17.5% as of December 2004.
TRIS Rating said, as KK engages in high risk/high return lending, especially residential project loans, its management has a policy to maintain large cushions of capital and loan loss allowances.
As of June 2006, KK’s non-performing assets (classified loans with more than three months pass due, outstanding amount of troubled debt restructuring and property foreclosed) was 0.76 times of its capital fund and allowance for loan loss, which was better than average of 1.19 times for all 14 Thai universal banks (including three new granted banks: ACL Bank PLC, TISCO Bank PLC and KK).