Bangkok--4 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of 'AA(tha)' to Krung Thai Bank Public Company Limited's (KTB) subordinated unsecured debentures of up to THB20bn, with a maturity of 10 years. The Outlook on the National ratings of the bank is Stable. Fitch notes that KTB's ratings are underpinned by strong government ownership and support, as well as its improving financial strength. KTB is Thailand's second-largest bank with a 16% market share; the Bank of Thailand's (BOT) Financial Institutions Development Fund (FIDF) holds a 55%-stake. Given KTB's size and importance to the financial system and economy, as well as its majority state-ownership and control, the agency believes there is a high probability KTB would receive state support, if needed. Although government ownership and control provide support to the Long-term debt ratings, these factors could weaken the bank's stand-alone financial performance.
KTB reported an improved in performance for 2008 with a net profit of THB12.1bn, double the previous year, due mainly to lower provisions despite mark-to-market CDO losses of THB2.4bn. High loan growth (9.2% yoy) and lower cost of deposits helped maintain net interest margin (NIM) at about 3.6% in 2008. Given Fitch's forecast of a sharp economic slowdown for Thailand in 2009 with expected GDP growth of -1.1%, KTB's performance will likely weaken due to margin pressure from slower loan growth, while renewed asset quality pressure could result in significant increases in provisioning costs, as the bank's loan loss coverage ratio is still low at about 42% of NPLs.
KTB's unconsolidated impaired loans declined to THB85.2bn (7.6% of loans) at end-2008 from THB96.1bn (9.5% of loans) at end-2007, due to write-offs and debt restructuring; although NPLs are expected to rise in 2009. Despite the bank's weakening capital ratios due to higher loan growth and the implementation of Basel II at end-December 2008, KTB's capital ratios remain adequate with Tier 1 and total capital ratio at 9.4% and 12.7%, at end-2008, respectively, providing some buffer against the deteriorating economic environment. Nonetheless, the bank's capital ratios could fall further if KTB increases lending to support the country's economic stabilisation.
Contacts: Vincent Milton, Bangkok, +662 655 4759; Patchara Sarayudh, +662 655 4761.
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