Bangkok--27 Mar--Fitch Ratings
Fitch Ratings has today downgraded TMB Bank Public Company Limited’s (TMB) foreign currency hybrid Tier 1 securities rating to ‘B+’ from ‘BB-’ (BB minus). The agency has affirmed TMB’s Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’ (BBB minus) with a Negative Outlook, Short-term foreign currency IDR at ‘F3’, Individual Rating at ‘C/D’, Support Rating at ‘3’ and Support Rating Floor at ‘BB’. Fitch has also affirmed TMB’s foreign currency subordinated debt at ‘BB+’, National Long-term Rating at ‘A+(tha)’ with a Stable Outlook, National Short-term Rating at ‘F1(tha)’, and National subordinated debt rating at ‘A(tha)’.
The downgrade of TMB’s hybrid Tier 1 rating reflects the heightened risk of non-coupon payment, on account that the bank may report a loss in 2009 due to the deteriorating operating environment. Performance in 2009 and 2010 is likely to be significantly affected by the weakening economy, which Fitch forecasts will contract by 3.8% this year. According to Bank of Thailand (BoT) regulations, hybrid Tier 1 securities coupons may be paid from profits or retained earnings. However, if a bank reports a loss, the coupons can only be paid if payment is approved by the BoT on a case-by-case basis. The BoT will take into account a commercial bank’s financial strength, such as capital, profitability and retained earnings, in making its decision. While TMB’s capital ratios have strengthened since major shareholder, ING Bank NV (ING), supported its recapitalisation in December 2007, profitability remains weak and the bank still has large negative retained earnings of THB103.2bn at end-2008.
Despite TMB’s substantial Q408 loss of THB4bn, which was mainly due to a more stringent provisioning policy, the bank reported a small net profit of THB0.5bn for the full year. TMB’s net interest margin improved slightly to 2.6% in 2008 from 2.4% in 2007, although this remains the lowest of the banking sector, and net interest income declined as its loans portfolio continued to shrink by a further 8.7% y-o-y. The bank’s cost-to-income ratio remains high at 73.6% due to further losses on asset impairments and a THB0.9bn provision for an early retirement scheme.
While TMB’s impaired loans declined in 2008 to THB70.6bn from THB78bn, due to non-performing loans (NPL) sale, its NPL ratio remains high at 16.6% of total loans. Given the size of the NPL overhang and likely further asset quality deterioration in 2009, the adequacy of the bank’s loan loss reserve (LLR) of THB45.9bn, or 65.1% coverage at end-2008, remains uncertain. TMB’s plans to accelerate the disposal of its bad loans in the next two years could result in further losses on disposal. TMB’s Tier 1 and total capital ratios of 10.1% and 13.9%, respectively, provide some buffer to absorb additional losses if needed. Hybrid Tier 1 accounts for 15% of Tier 1 capital. TMB’s liquidity measures appear in line with local peers, but the bank has a weaker deposit franchise than the largest four Thai banks.
TMB is currently the sixth-largest commercial bank in Thailand with assets of THB601.9bn (USD17.2bn). ING is the largest shareholder at 30%, followed by the Ministry of Finance at 26% and Singapore’s DBS Bank at 7%. ING is the second-largest retail bank in The Netherlands with total assets of USD1.4trn and regional retail operations in India and China. TMB has a sizeable 7% market share of system deposits. Fitch believes the probability of external support, if required, from the government or ING is moderate.
Contacts: Patchara Sarayudh, Bangkok: +662 655 4761; Vincent Milton, Tel: +662 655 4759.