Bangkok--8 Dec--Moody's Investors Service
Moody's Investors Service has today changed to negative from stable the outlook on Krung Thai Bank's (KTB) D- bank financial strength rating ("BFSR"), A3/Prime-1 local currency deposit ratings and the Baa3 rating for its preferred stock. The bank's Prime-2 short-term foreign currency deposit rating was unaffected.
"The rating action was prompted by concerns over the direction of asset quality at the bank in light of the deteriorating economic and political environment in Thailand," says Karolyn Seet, a Moody's AVP/Analyst.
"We also caution that the economic downturn, which is already well underway, is now likely to be worse than anticipated, and greater asset quality problems will gradually emerge," says Seet.
"Additional concerns relate to the bank's high single-borrower concentration and low capitalization," says Seet, adding, "From an economic solvency point of view, after adjusting for possible additional loan losses, we estimate that KTB will report the lowest economic capital ratios compared to other Moody's-rated Thai banks."
"Accordingly, more capital will be needed to counter the deterioration in asset quality expected over the medium term," says Seet.
Moody's further notes that, like all other Thai banks, KTB has exposure to the real estate and construction, and tourism sectors. Moody's expects that these sectors are likely to be adversely affected by the ongoing economic slowdown and political turmoil. The negative rating outlook reflects the fact that the bank is now placed at the lower end of its BFSR category in a weaker economic environment.
At the same time, KTB's liquidity position is satisfactory with a 98% loan-to-deposit ratio, while its deposit base is large and accounted for nearly 90% of its funding at end-September 2008.
Finally, the rating agency cautions that a downgrade of KTB's BFSR and deposit ratings could be prompted by a further weakening in its asset quality, or a tightening in its liquidity profile, given the challenging nature of conditions prevailing in the Thai banking sector.
The last rating action for KTB was taken on December 5, 2008, when the outlooks for its foreign currency long-term deposit rating and foreign currency certificate of deposit program rating of Baa1 were changed to negative from stable.
The principal methodologies used in rating this issuer are the "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology".
These can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.
Headquartered in Bangkok, Thailand, KTB reported consolidated assets of Bt1,312 billion (US$38 billion) at end-September, 2008.