Bangkok--7 Aug--TRIS Rating TRIS Rating Co., Ltd. has assigned a rating to the proposed issue of up to Bt5,000 million in senior debentures of Kiatnakin Bank PLC (KK) at “A-”. At the same time, TRIS Rating has affirmed KK’s company and current issue ratings at “A-”. The rating 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 2-7 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 the first quarter of 2008, total loans grew 8.7% from the end of December 2007, mainly from hire purchase lending, which accounted for 68% of loans outstanding, or 50% of total assets. Residential project loans had been stabilized and decreased by about Bt1.6 billion as of 31 March 2008, leading to 18% of total loans, or 13% 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 from 12.3% as of December 2007 to 10.6% as of 31 March 2008. However, this is far above the industry average for the 12 universal banks, whose ratios of NPLs to total loans were 8.62% as of 31 March 2008.KK’s asset quality has been adversely impacted by residential project loans. Classified loans from residential projects accounted for 65% of total classified loans (Bt5 billion out of the total Bt7.7 billion as of 31 March 2008). KK’s non-performing assets (classified loans with more than three months pass due, outstanding amount of troubled debt restructuring and foreclosed property) were 0.87 times its capital fund and allowance for loan loss as of 31 March 2008, compared with the ratio of 0.81 times of the industry average for the 12 universal banks. 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. At the end of March 2008, KK’s BIS ratio was 15.4%, said TRIS Rating.