Bangkok--20 Jul--Fitch Ratings
Fitch Ratings has today affirmed Bank of Ayudhya Public Company Limited’s (BAY) Long-term foreign currency Issuer Default rating (IDR) at ‘BBB’ with a Negative Outlook, , Short-term foreign currency IDR at ‘F3’, Individual rating at ‘C’, Support Rating at ‘3’, Support Rating Floor at ‘BB+’, National Long-term rating at ‘AA-(tha)’ with a Stable Outlook, National Short-term rating at ‘F1+(tha)’, National subordinated debt at ‘A+(tha) and foreign currency subordinated debt at ‘BBB-’.
The ratings were based on BAY’s improved profitability and asset quality, and its strong capital position despite the challenging operating environment. BAY reported a net profit of THB4.9bn in 2008 - a substantial improvement from a THB4.0bn net loss in 2007 - despite CDO writedowns. This was due to strong revenue growth from the acquisition in February 2008 of AYCAL (formerly GECAL), and a more normal provisioning level. In Q109, the bank reported a net profit of THB1.0bn, which was relatively flat yoy. The net interest margin (NIM) improved to 4.2% in 2008 from 3.4% in 2007 on account of increased exposure to higher-yielding retail assets and NPL reduction.
BAY’s asset quality has improved significantly, with impaired loans falling to about 10% of loans at end-2008 (end-2007: 16%) mainly due to NPL sales and loan restructuring. BAY’s loan loss coverage improved to 58.6% at end-March 2009 (end-2006: 45.0%), though this is still lower than the industry average of about 70%. Given the weak operating environment and the bank’s moderate coverage, Fitch believes BAY still faces provisioning risk, although this should now be offset by revenues.
BAY’s liquidity is adequate, with a loan-to-deposit ratio (including short-term borrowings) of 98.7% at end-March 2009. The bank’s wholesale funding increased substantially in 2007-2008 as it prepared for acquisitions in 2008 and early 2009.
BAY’s capital position was substantially strengthened in 2007 by GE Capital International Holdings Corporation’s (GECIH) investment, but has since declined due to acquisitions. At end-March 2009, Tier 1 and total capital ratios stood at 12.9% and 15.6%, respectively. The acquisition of GE Money Thailand could see capital ratios decline by up to 150 bp, although capital should remain relatively strong.
The Outlook on the international ratings is Negative as there is a risk of a prolonged economic contraction into 2010. This could impact the bank’s asset quality, profitability and possibly capital. Mitigating these risks are the bank’s strong capital buffers, which together with management, operational and financial support from GECIH, should further strengthen the bank’s franchise in the medium term. On completing the acquisition of GE Money Thailand’s core entities (THB79.6bn in assets), retail lending is expected to account for about 40% of total loans.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank, with 583 branches and a 8.2% share in lending and a 7.4% share of deposits. Its key subsidiaries include auto finance, credit card, securities and fund management units. GECIH acquired a 29% stake in January 2007 and now holds 33% of total shares. The Ratanarak family holds a 25% stake. Given BAY’s relatively large share of deposits and loans, there is a moderate probability of government support, should this be needed.
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: Narumol Charnchanavivat, Bangkok, +662 655 4763; Vincent Milton, +662 655 4759.
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