Bangkok--12 Jun--Fitch Ratings
Fitch Ratings (Thailand) has today assigned a National Long-term rating of ‘BBB+(tha)’ to Siam City Bank Public Company Limited’s (SCIB) unsecured subordinated debentures of up to THB10bn with a maturity of 10 years. SCIB’s current ratings are: National Long-term rating ‘A-(tha)’ (A minus(tha)), and National Short-term rating ‘F1(tha)’. The Outlook is Stable.
The rating takes into account SCIB’s weak franchise and improving but still limited financial strength. After reporting a net loss of THB2bn in 2007, SCIB posted a net profit of THB4.1bn in 2008 due to lower provisioning for bad debt. However, its Q109 results weakened with net profit falling to THB0.7bn from THB1.3bn in Q108 due mainly to lower net interest income and mark-to-market losses on investment incurred by its subsidiaries. Loan growth was also flat in the same quarter, although the bank has targeted about 6% loan growth for the full year focusing on housing and SMEs. The sharp deterioration in Thailand’s economic outlook with Fitch projecting a 3.8% contraction in 2009 will likely affect the bank’s growth and profitability in 2009.
SCIB’s impaired loans increased to THB24.6bn (or 8.8% of total loans) at end-2008, from THB18.4bn or 7.3% at end-2007. The increase in impaired loans came mainly from higher impaired loans in services (mainly hotels) and manufacturing sectors, as well as additional qualitative loan classification. SCIB’s asset quality deteriorated further in Q109 as impaired loans increased to THB26bn (or 9.3% of total loans) at end-March 2009. The bank’s loan loss reserves coverage ratio of 62% in the same period also appears lower than the peer average of about 70%. While SCIB plans to reduce its impaired loans ratio to about 5.5% by end-2009 (mainly through debt restructuring and NPL sales), the bank is likely to face further asset quality deterioration over the course of this year given the sharp economic slowdown, as well as its high exposure to the SME sector (39% of total loans), property developers (14% of total loans) and the services sector (12% of total loans) which could result in higher NPLs and provisioning costs.
SCIB has a relatively large investment portfolio of THB81bn, which accounted for about 19.2% of total assets. The bank’s portfolio consisted mainly of government and state enterprise securities at 61.5% and foreign debt securities (mostly sovereign and financial institution bonds) at 12.6%. While the bank’s capital remains adequate, with Tier 1 and total capital ratios at end-March 2009 of 9.8% and 10.5%, respectively, this capital buffer could be needed if the severe economic contraction is prolonged.
The strengthening of the bank’s franchise, risk controls and management as well as a clearer long-term strategy and support from a major shareholder could improve its ratings in the medium term.
SCIB was nationalised following the 1997 financial crisis, and in 2002, merged with another nationalised bank, Bangkok Metropolitan Bank. The central bank’s Financial Institutions Development Fund (FIDF) still retains a 47.6% stake, although this is expected to be divested and hence there is a limited probability of state support. The bank has nearly 7,200 employees and over 400 branches with a 4.8% share of loans and 5.6% share of deposits, as well as subsidiaries in insurance, securities, asset management and leasing.
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.
Contacts: Patchara Sarayudh, Bangkok, +662 655 4761; Vincent Milton, Bangkok, +662 655 4759.