Bangkok--12 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned ‘AA-(tha)’ (AA minus(tha)) National Long-term ratings to Bank of Ayudhya Public Company Limited’s (BAY) unsecured and unsubordinated debentures of up to THB20 billion of up to 4 years tenor. The Outlook is Stable.
The rating reflects BAY’s improved profitability and asset quality despite the challenging operating environment, and the bank’s strong capital position, together with the operational and financial support of GE Capital International Holdings Corporation (GECIH), which now holds a 33% stake in the bank. The increasing commitment from GECIH should also bolster the bank’s retail banking franchise and help improve the bank’s profitability over the medium term. Near term, while performance could weaken, BAY has a strong capital cushion to absorb an expected sharp economic slowdown in Thailand in 2009.
Following a loss of THB4.0bn in 2007 due to large provisioning, BAY reported a significant improvement in 9M08 with net profit of THB4.0bn mainly due to lower provisioning and higher revenues. BAY’s performance was affected by mark-to-market losses of THB1.7bn on its CDO investment, with current residual value equivalent to 20% of cost. Revenue and margins were boosted by the acquisition of GE Capital’s auto finance unit, GECAL, with assets of THB77.8bn in February boosting the bank’s asset size by 12%. BAY’s net interest margin (NIM) rose to 3.9% in 9M08 from 3.0% in 2007.
For 9M08, impaired loans declined to THB64bn (12% of total loans) from THB72bn (16% of total loans) at end-2007. The bank sold a further THB8.9bn of NPLs in October, which should reduce NPLs to less than 10% by year-end. While its loan loss reserve coverage improved to 56% of impaired loans at end-9M08, this still appears low compared to its peers, implying a risk of further provisioning, but this should be largely offset by earnings recovery.
GECIH’s investment of THB32bn and additional warrant conversions of THB9.7bn in 2007 has resulted in BAY having one of the strongest capital positions of Thai banks, with Tier 1 of 13.7% and total capital ratio of 17.7%. Operational risk charges under Basel 2 may cause a slight decline in these ratios by year-end.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank, with 579 branches and a 9% market share in lending and 8% in deposits. Its key subsidiaries are auto finance, credit card, securities and fund management. Given BAY’s relatively large share of deposits and loans, there is a moderate probability of government support, should this be needed.
Contacts: Patchara Sarayudh, Vincent Milton, Bangkok, +662 655 4761/4759.
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.
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