Bangkok--6 Nov--Moody's Investors Service
Moody's Investors Service has changed to stable from positive the outlook on Siam Commercial Bank Public Company Limited's ("SCB") D+ bank financial strength rating ("BFSR") as well as A3 local currency deposit and foreign currency senior debt ratings.
In the same rating action, Moody's has affirmed the bank's Baa1/Prime-2 long-term/short-term foreign deposit ratings.
The change in the BFSR outlook has been prompted by the increasingly challenging nature of the operating environment in Thailand, where economic growth is expected to decelerate.
"Accordingly, the bank's liquidity and funding positions could exhibit stress, while the downward trend in interest rates is now pressuring interest spreads and will likely continue to do so in 2009," says Karolyn Seet, a Moody's AVP/Analyst. "In addition, the slowing economy will intensify competition in the SME, retail and hire-purchase sectors.
"The outlook change also reflects the narrowing loan growth discrepancy between SCB and its closest competitors -- especially with the full completion of IAS39-related provisions -- and continued political uncertainty," adds Seet, also Moody's lead analyst for the company.
Moody's considers that the longevity and severity of the weakening credit environment suggests that SCB's financial fundamentals are unlikely to strengthen sufficiently to warrant a rating upgrade in the immediate future.
Meanwhile, loan growth by the bank could prove difficult to sustain, given the current global credit turmoil, rising inflation as well as the slowdown in exports. As a result, the bank may have to implement further credit write-downs.
In line with such a scenario, SCB must be able to increase its loan loss provisions, a course of action which would prevent it from achieving the strong financial fundamentals needed to justify a BFSR in the C- range. Therefore, a positive outlook on the BFSR would be difficult.
At the same time, Moody's maintains a cautiously optimistic outlook, and states that profitability and credit considerations aside, SCB's D+ BFSR is supported by the solid nature of its franchise and management in Thailand.
Furthermore, liquidity is ample and capital adequacy sound, although Moody's notes the existence of some large, single-client exposures which border on the high side and are a negative consideration for the BFSR.
Negative pressure on the BFSR could also follow any significant deterioration in the franchise value of SCB's SME, retail and hire-purchase banking business lines.
Conversely, a material strengthening of SCB's asset quality -- i.e. an NPL ratio under 2% and improved loan granularity -- could lead to upward pressure on the BFSR.
Moody's notes that SCB's local currency deposit rating incorporates a three-notch lift due to the expected support from the Thai government, given the bank's significant market position and importance to the country's financial and payment systems.
Based on this rating and the expectation of very high probability of support, the outlook on SCB's deposit and debt ratings is stable. Meanwhile, its foreign currency deposit rating is constrained at Baa1, the country's ceiling.
Headquartered in Bangkok, SCB is Thailand's third largest bank, with total assets of Bt 1,206 billion as of June 30, 2008.
Singapore
Karolyn C. Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
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Singapore
Beatrice Woo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
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SUBSCRIBERS: (65) 6398-8308