TRIS Rating Co., Ltd. has affirmed the company rating of Mega International Commercial Bank PLC (Mega ICBC) at “A+” and has also affirmed the rating of the bank’s Bt3,000 million debentures under short-term debenture program at “T1”. The rating outlook remains “stable”. The “A+” company rating of Mega ICBC reflects the strong parent support Mega ICBC receives from its Taiwanese parent bank as a strategic importance to penetrate into the Asia Pacific region. The rating also takes into consideration Mega ICBC’s strong market position in lending to Taiwanese investors as the only Taiwanese bank in Thailand, its good asset quality and its strong capitalization. Limited prospects for Taiwanese investment in Thailand and higher competition from local banks are factors that limit Mega ICBC’s loan portfolio growth. The rating is partially constrained by a less favourable operating environment and Mega ICBC’s limited franchise value and network in Thailand, compared with other well-established local commercial banks. The “T1” rating of Mega ICBC’s short-term debentures reflects the long-term credit profile of the bank at “A+”, which considers the bank as an important strategic subsidiary of its parent bank in Taiwan. The short-term rating also reflects the bank’s ability to access liquidity sources due to the nature of commercial banks having high liquid assets on their balance sheet and an easy access to diversified funding sources. Mega ICBC’s high liquidity is supported by one-day access to credit lines from its parent bank, interbank markets, the bond repurchase market and the Bank of Thailand’s (BOT) loan windows. In addition, Mega ICBC also has an access to credit lines from the Central Bank of China (Taiwan), which Mega ICBC reserves as a last liquidity resource. This line normally takes one week to access. The “stable” rating outlook reflects the likelihood that Mega ICBC will deliver a medium-term financial performance as expected, by leveraging its parent’s franchise to enhance its business expansion in the Thai commercial banking industry. The outlook is also based on the expectation that Mega ICBC will maintain its role as an important strategic subsidiary of its parent bank. Being a subsidiary of a foreign bank benefits the bank in terms of expanded scope of business and financial flexibility and liquidity. Strong support from its parent and its strong capital fund are expected to help mitigate future downside risks from uncertain economic and banking business environment. TRIS Rating reported that Mega ICBC, which was granted a foreign bank subsidiary license by the Ministry of Finance (MOF) of Thailand in August 2005, is a wholly-owned subsidiary of Mega International Commercial Bank in Taiwan (Mega ICBC, Taiwan). Before being granted the license, the bank had operated as a full foreign bank branch in Bangkok since 1947. Mega ICBC is highly integrated to its parent’s operational system, business model and strategies, and also leverages on its parent bank’s brand name. The bank’s customer base partly stems from the strong relationship between its parent and Taiwanese corporations that have invested in Thailand or that have subsidiaries in Thailand. Back-up credit lines from its parent bank provide Mega ICBC with sufficient liquidity and financial flexibility. Mega ICBC, Taiwan, is currently rated “A” by Standard & Poors and “A1” by Moody’s Investors Services, with a “stable” outlook from both rating agencies. The ratings were supported by its leading position in foreign exchange and trade finance markets, good asset quality, high liquidity and implicit support from the Taiwanese government. TRIS Rating said, as a new and small commercial bank, Mega ICBC has limited franchise value compared with large local commercial banks. The bank has a small-sized banking network and limited banking services. As a foreign bank subsidiary, Mega ICBC is limited by the regulation to have no more than four branches. As of June 2007, this foreign bank subsidiary’s total assets were Bt12,066 million, which was the smallest size among all 14 Thai commercial banks, with a market share of only 0.2%. The bank serves a niche market of Taiwanese-based and Taiwanese-related business clients operating in Thailand. Currently, the bank’s Taiwanese clients in Thailand accounted for about 80% of its loan portfolio. Mega ICBC had good asset quality. As of June 2007, the bank’s ratio of non-performing loans (NPL) to total loans according to the Bank of Thailand’s (BOT) definition was 3.95%. From TRIS Rating’s calculation, Mega ICBC’s ratio of NPLs to average loans was 4.11% as of June 2007, far lower than the average ratio of 9.35% for all 14 Thai universal banks. Supported by the bank’s larger capital base, Mega ICBC increased its ability to expand loans to new medium-sized Taiwanese investment projects. As of June 2007, its capital adequacy ratio was 36.85%, however, this rate is expected to decline when Mega ICBC’s portfolio expands. -- End Mega International Commercial Bank PLC (Mega ICBC)Company Rating: Affirmed at A+Issue Rating:Bt3,000 million debentures under short-term debenture program Affirmed at T1Rating Outlook: Stable-------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. 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