Bangkok--22 May--Fitch Ratings Fitch Ratings (Thailand) Limited has today assigned National Long-term ratings of ‘AA(tha)’ to two tranches of Krung Thai Bank Public Company Limited’s (KTB) subordinated unsecured debentures of up to THB25 billion (with a green shoe option of an additional THB3.0bn), both due in 2018. Fitch notes that KTB’s ratings are underpinned by strong government ownership and support, as well as improving financial strength. KTB is the second-largest Thai bank with an 18% market share with the Bank of Thailand’s (BOT) Financial Institutions Development Fund (FIDF) holding a 55% stake. Given KTB’s size and importance to the financial system and economy, as well as its majority state ownership and control, Fitch believes there is a high probability it would receive state support should the need arise. Although government ownership and control provide support to the long-term debt ratings, these factors could weaken KTB’s stand-alone financial performance. After poor results in 2007, due to weak loan growth and higher provisioning to comply with BOT’s stricter accounting rules, KTB’s performance showed improvement in underlying performance in Q108. KTB reported a profit before income tax of THB6.3bn in Q108, up 37.6% yoy, largely driven by improved net interest margins due to a pick-up in loan growth and lower deposit costs, although net profit of THB4.3bn was impacted by higher taxes (Q107: THB4.5bn). The bank’s collateralised debt obligation (CDO) investments of THB5.4bn are relatively small and the bank has already taken mark to market losses of about THB3.0bn. Stronger loan growth and possibly lower provisioning should result in improved performance for 2008. The bank’s current guidance on normalised provisioning amounts to only THB6.0bn in 2008, compared to total provisioning of THB19.6bn in 2007. However, in Fitch’s view, KTB still faces significant provisioning risks given that its loan loss reserve coverage ratio remains low at about 35%, or about half the level of its peer group. KTB's impaired loans increased to THB102.2bn, or 11.3% of total loans at end-Q108, from THB96.6bn (11.1%) at end-2007, due mainly to the relapse of restructured debt. Loan loss reserves currently amount to only THB35.2bn. KTB expects to reduce gross NPLs to about 8% by year-end as a result of debt restructuring and further NPL sales. Pre-provision earnings and capital remains strong with Tier 1 capital at 10.97% of total risk-weighted assets at end-Q108, partially offsetting the provisioning risks. Higher asset growth and operating risk charges under Basel II will also likely see capital ratios decline moderately in the next two years. Contacts: Vincent Milton, Darunee Peanmanakit, Bangkok, +662 655 4759/52. Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.