Bangkok--11 Apr--Moody's Moody's Investors Service has upgraded the Bank of Ayudhya Public Co Ltd's (BAY) bank financial strength rating(BFSR) to D from D-. At the same time, the bank's deposit and debt ratings have been upgraded to Baa2/Prime-2 from Baa3/Prime-3. The outlook for all ratings is stable. This rating action concludes Moody's review of BAY's BFSR for possible upgrade as announced December 11, 2007. "The upgrade indicates Moody's recognition of BAY's ongoing improvements in its restructuring efforts, economic solvency, earnings diversification and risk profile. In addition, a larger exposure to hire purchase and retail banking could also lead to a more balanced lending portfolio, supporting its development into a well-recognised universal bank," says Karolyn Seet, Moody's lead analyst for the bank. The rating agency also says that BAY's long-term deposit rating of Baa2 is supported both by the bank's Ba2 Baseline Credit Assessment and by Moody's assessment of a very high probability of systemic support in the event of need. On the flip side, Moody's cautions that BAY faces challenges, not least intense competition in its retail business. This could adversely affect its already poor credit quality due to an over-aggressively expanding loan book, while the bank's impaired assets could continue to limit its earnings potential. Its weak balance sheet, with a non-performing loan(NPL) ratio of 16% and 50% loan loss reserve coverage, is worse than the average 12% and 73% respectively for Thailand's rated commercial banks. During 2008 a combination of synergies expected from the bank's GE Capital Auto Lease (GECAL) acquisition, the impending sale of NPLs, higher margins and leaner asset quality could boost BAY's ability to maintain the strong financial fundamentals necessary for a BFSR of D. In addition, the technical support that BAY will enjoy from GE should allow the bank to further enhance its franchise and competitive position. This will help the bank penetrate Thailand's growing consumer banking sector and narrow the gap in terms of financial performance with its peers. Moody's believes that the following factors could result in upward pressure on the BAY's BFSR: (i) continued diversification of the bank's business away from corporate lending to retail banking; (ii) further enhancement of its risk management; (iii) maintenance of its strong capital adequacy; (iv) significant reduction in the level of NPLs; and(v) increasing profitability. Moreover, for it to upgrade the bank's deposit and debt ratings, Moody's would also expect BAY to strengthen its market and capital positioning. Conversely, the rating agency would view any or all of the following factors as possible reason for a rating downgrade: (i) worsening operating environment in Thailand -- due to rising inflation, a slow-down in exports, oil price hikes and/or political uncertainty; (ii) potential deterioration of BAY's asset quality as its expanding retail loan books begin to season; (iii) fall in the bank's margins and profitability; and/or (iv) significant decline in capital adequacy or liquidity. BAY, headquartered in Bangkok, is Thailand's fifth largest bank by assets and deposits. As of December 31, 2007, it had total assets of Bt 651 billion. The following ratings have been upgraded: Bank financial strength rating to D from D- Long-term foreign currency deposit rating to Baa2 from Baa3 Short-term foreign currency deposit rating to Prime-2 from Prime-3 Foreign currency debt rating to Baa2 from Baa3 Singapore Karolyn C. Seet Asst Vice President - Analyst Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308 Singapore Beatrice Woo VP - Senior Credit Officer Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308