Bangkok--5 Oct--TRIS Rating TRIS Rating Co., Ltd. has assigned a “A-” rating to the proposed up to Bt3,000 million senior debentures of Kiatnakin Bank PLC (KK). At the same time, TRIS Rating has affirmed the company and current issue ratings of KK at “A-”. The outlook remains “stable”. The ratings reflect KK’s acceptable retail banking position, experienced management team, and the capability to maintain profitability. The bank’s ability to diversify into other businesses to replace its fading distressed asset management business is reflected in its constant asset growth. KK’s strong cushion of capital enables it to absorb risks from adverse changes in the banking business environment and from asset quality deterioration. However, the ratings are constrained by high delinquent loans, its small-sized banking model and limited distribution channels compared with subsidiaries of large banks, which may impact its long-term competitiveness. In addition, vulnerability to intense competition in retail banking business and exposure to high risk portfolio might limit KK’s business growth and profitability in the future. The “stable” outlook reflects the expectation that KK will be able to sustain its profitability amid a dynamic financial environment that will see regulatory change in the medium term, and will be able to improve asset quality as a result of the bank’s strategy to expand into good quality assets. The rating outlook also reflects the bank’s ability to maintain sufficient capital fund to support the risk of asset devaluation from the result of economic instability. However, if asset quality deteriorates significantly, it will negatively impact the bank’s outlook or ratings. TRIS Rating reported that KK’s distressed assets and foreclosed property portfolio will wind down over the next 3-8 years. Management has shifted its focus to growing assets by extending loans in high yield products such as hire purchase and residential project loans. As of June 2007, KK’s hire purchase loans accounted for 60% of total loans outstanding, or 43% of total assets. Residential project loans accounted for 23% of total loans, or 21% of total assets. The bank’s three main businesses (investment in distressed assets, hire purchase loans, and residential project loans) have enabled KK to generate income and sustain high yields. KK’s ratio of classified loans (sub-standard, doubtful and doubtful loss) to total loans improved slightly from 14.5% as of December 2006 to 14.1% as of 30 June 2007. However, this is far above the industry average for the 14 universal banks, whose ratio of NPLs to total loans was 9.4% as of June 2007. KK’s asset quality has been adversely impacted by residential project loans. Classified loans from residential projects accounted for 67% of total classified loans (Bt5 billion out of the total Bt8 billion as of June 2007). As a result of changing the accounting standard to record its subsidiaries’ financial statement from equity to cost method, effectively on 1st January 2007, KK’s non-performing assets (classified loans with more than three months pass due, outstanding amount of troubled debt restructuring and foreclosed property) were 1.0 times its capital fund and allowance for loan loss, higher than 0.8 times in 2006. This is also reflected in a decline of KK’s BIS ratio from 22.2% in 2006 to 17.4% at the end of June 2007. As KK engages in high risk-high return lending, especially residential project loans, therefore, to maintain strong cushions of capital and loan loss allowances is crucial to mitigate the bank’s future downside risks, said TRIS Rating. Kiatnakin Bank PLC (KK) Company Rating: Affirmed at A- Issue Ratings: KK085A: Bt1,400 million senior debentures due 2008 Affirmed at A- KK087A: Bt3,000 million senior debentures due 2008 Affirmed at A- KK08NA: Bt1,580 million senior debentures due 2008 Affirmed at A- KK095A: Bt600 million senior debentures due 2009 Affirmed at A- KK09NA: Bt920 million senior debentures due 2009 Affirmed at A- Up to Bt3,000 million senior debentures due 2010 A- Rating Outlook: Stable