Bangkok--10 Feb--Fitch Ratings
Fitch Ratings has today upgraded BankThai Public Company Limited’s (BT) Support rating to ‘3’ from ‘4’ and removed it from Rating Watch Positive following the acquisition of a majority stake in the bank by Malaysia’s CIMB Bank Berhad (CIMB, ‘BBB+’/Stable Outlook).
Given the increased level of CIMB’s ownership in BT in January 2009 to 92.04% from 42.13%, Fitch believes that there is now a moderate — and potentially a high - probability of shareholder support, if required. CIMB plans to change the bank’s name to CIMB Thai Bank Public Company Limited and raise new capital of about THB5bn in form of equity and hybrid tier 2, which should be completed within Q109. Further board and key management appointments to give CIMB full control, as well as a clear long-term strategy to improve the bank’s franchise in Thailand and a successful integration could lead to a higher Support rating over the next year.
BT’s performance continued to weaken with reported further losses of THB1.9bn in 2008. The weak performance was mainly due to losses of BT’s investment in CDOs of THB2.9bn. BT’s net interest margins (NIM) remained stable at about 3% in 2008.
The bank also has a large portfolio of THB12.3bn in structured notes. BT reports that the notes are issued by foreign financial institutions and were rated ‘A+’ or higher with average price at about 93% of cost at end-September 2008. The bank could still face impairment risks given the stress on banks and sovereigns in the US and Europe, if credit markets continue to deteriorate.
BT’s impaired loans stood at THB13.6bn, or 14.7% of loans, at end-September 2008, a slight decline from THB13.9bn or 14.1% at end-2007, due to the sale of NPLs in H108. Loan loss reserves of THB10bn or 73.5% coverage appear to be inline with its local peers, but given the sharp deterioration in the economic environment since Q408, NPLs and provisioning could increase once again impacting profitability. CIMB expects the recapitalisation of THB5bn should increase BT’s total capital to about 11%.
CIMB Group Sdn Bhd (CIMB Group) is Malaysia’s second-largest financial services group and holds 99.99% of CIMB, which is one of their main subsidiaries. The ultimate holding company of CIMB Group is the listed Bumiputra-Commerce Holdings Berhad (BCHB). Malaysian government entities, including Khazanah, the government’s investment arm, hold a combined 46% stake in BCHB. CIMB Group has expanded regionally in recent years, with a 78% stake in Indonesia’s PT Bank CIMB Niaga and a proposed 19.99% stake in China’s Bank of Yingkou. In 9M08, BCHB reported a net profit of USD0.5bn, with assets of over USD54bn.
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Contacts: Vincent Milton, Bangkok, +662 655 4759; Patchara Sarayudh, Bangkok, +662 655 4761.