Bangkok--20 Mar--Fitch Ratings
Fitch Ratings—Bangkok/Singapore—20 March 2007: Fitch Ratings (Thailand) Limited has today revised the rating Outlooks on Thanachart Capital Public Company Limited (“TCAP”) and its bank subsidiary Thanachart Bank Public Company Limited (“TBANK”) to Negative from Stable, while affirming all ratings on both entities. At the same time, the agency also affirmed the ratings of the other large, mainly auto financiers. The affected ratings are listed below:
TCAP: National Long-term ‘A-(tha)’ (A minus(tha)) with Negative Outlook, National Short-term affirmed at 'F2(tha)' and Support at '5';
TBANK: National Long-term ‘A-(tha)’ (A minus(tha)) with Negative Outlook, National Short-term affirmed at 'F2(tha)', Individual at ‘D’ and Support at '5';
TISCO Bank Public Company Limited (“TISCO”): National Long-term ‘A(tha)’ with Stable Outlook and National Short-term ‘F1(tha)’;
Kiatnakin Bank Public Company Limited (“KK”): National Long-term ‘BBB+(tha)’ with Negative Outlook and National Short-term ‘F2(tha)’;
Siam Commercial Leasing Public Company Limited (“SCBL”): National Long-term ‘A(tha)’ with Stable Outlook and National Short-term ‘F1(tha)’.
Fitch’s rating actions come as the four major Thai auto financiers face a further weakening in the operating environment in 2007 which could see some operators vulnerable to rising asset quality and profitability pressures. Receivables growth is expected to fall significantly which - together with rising funding costs, operating expenses and competition on lending rates - will keep margins low. Furthermore, following several years of aggressive growth and competition, which led to a significant relaxation of origination standards on down payments and tenors, credit costs (i.e. provisioning) are expected to rise.
TCAP and TBANK, have been the most aggressive, having established their dominant market position over the course of six years (average annual growth rate of 30.4% compared with TISCO’s 18.4%); however profitability appears the weakest, due primarily to its aggressive pricing, rising funding costs as well as costs incurred from its large branch network expansion.
The revisions of TCAP’s and TBANK’s rating Outlooks reflect Fitch’s concerns on deteriorating profitability, weakening capital position and vulnerability to rising delinquencies and credit costs stemming from the group’s high growth strategy.
KK’s ratings reflect the bank’s vulnerability to further asset quality pressures due to its large loan exposure to small- to medium-sized property developers (which accounts for about a third of KK’s loan book) and the weakening operating environment, although these risks are partly mitigated by its higher margins and strong capital position.
TISCO’s ratings take into account the bank’s strong profitability, asset quality and capital, as well as a more conservative track record. TISCO’s ratings Outlook remains Stable given that profitability and asset quality is expected to be maintained despite the weakening operating environment. Nonetheless, a substantial reduction in its capital ratio could put downward pressure on the bank’s ratings in the medium term.
The ratings of SCBL are based on Siam Commercial Bank Public Company Limited’s (“SCB”, rated National Long-term ‘AA(tha)’) support as a majority shareholder. SCB’s plan to double the size of SCBL in 2007 could also add further pressure to the profitability and origination standards of the industry.
CONTACTS: Sorasit Vanaprasert, Vincent Milton, Chaiyapat Paitoon, Bangkok +662 655 4755