TRIS Rating Co., Ltd. has affirmed the company rating of Kiatnakin Bank PLC (KK) and the ratings of KK’s current senior debentures at “A-”. At the same time, TRIS Rating has assigned a rating to KK’s proposed up to Bt4,000 million senior debentures at “A-”. The rating outlook is “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 lower risk 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. The bank’s 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 December 2007, KK’s hire purchase loans accounted for 64% of total loans outstanding, or 47% of total assets. Proportion of residential project loans to total assets declined from 18% in 2006 to 16% in 2007. 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 with more than three months pass due (sub-standard, doubtful and doubtful loss) to total loans improved slightly from 14.5% as of December 2006 to 12.4% as of 31 December 2007. However, this is above an average of about 8.2% for all 14 Thai universal banks. TRIS Rating said, KK’s asset quality has been adversely impacted by residential project loans. Classified loans from residential projects accounted for 63% of KK’s total classified loans (Bt5.4 billion out of the total Bt8.5 billion as of December 2007). As a result of changing the accounting standard to record its subsidiaries’ financial statement from equity to cost method, effectively on 1 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 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 Bank for International Settlement (BIS) ratio from 22.2% in 2006 to 16.4% at the end of December 2007. As KK engages in high risk-high return lending, especially residential project loans, it is crucial that the bank should maintain strong cushions of capital and loan loss allowances to mitigate its future downside risks, said TRIS Rating. -- EndKiatnakin 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- KK09NB: Bt2,034 million senior debenture due 2009 Affirmed at A- KK10NA: Bt966 million senior debenture due 2010 Affirmed at A-Up to Bt4,000 million senior debentures due 2011 A-Rating Outlook: Stable -------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. 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