Bangkok--29 Jul--Fitch Ratings
Fitch Ratings has today affirmed Thailand’s Kiatnakin Bank Public Company Limited’s (KK) National Long-term rating at ‘BBB+(tha)’ with a Stable Outlook, and National Short-term rating at ‘F2(tha)’.
The ratings reflect KK’s strong capital and profit margins, although it has a riskier asset portfolio due to its exposure to distressed assets, residential project lending and used-car financing. The bank’s liquidity is also weaker than larger banks.
KK’s performance in 2008 was slightly weaker yoy, with net income declining 12%, despite higher net interest income from strong loan growth (22% yoy). This was due to the decline in the net interest margin (NIM) to 5.2% in 2008 (2007: 5.5%) and higher provisioning in Q408. Q109 results were also weaker with net income falling by 38% yoy due to loan contraction qoq, and lower asset yields, while funding costs declined less. Margins, however, remained the highest of the sector, reflecting the bank’s focus on distressed assets and higher-risk loans.
The bank’s impaired loan ratios declined to 8.5% at end March 2009 (end 2008: 8.7%; end 2007: 12.4%) due to loan restructuring and write-offs as well as strong asset growth in 2008. However, KK could face renewed asset quality pressure in 2009 due to a weakening economic environment, especially given its high exposures to small-sized property developers (12% of total portfolio) and used car financing (35% of total portfolio ).
Meanwhile, KK has raised its provision level to be more in line with the industry. NPL coverage improved to 50% at end-2008 (end-2007: 37%). However, deteriorating economic conditions and a potential decline in collateral value may result in higher provisioning risk.
KK raised significant deposits in 2008 (133% yoy growth), comprising mostly term deposits from high-net-worth clients. Most of the term deposits mature within one year while loans are longer term. The bank’s reliance on large depositors and short-term funding and weak liquidity ratios are key concerns in a volatile environment, given that rollovers can disappear in a liquidity crisis, though deposit protection (until 2012) may help to mitigate liquidity risks for the time being.
KK’s Tier 1 capital ratio has declined in recent years to 14.85% at end-March 2009 from over 20% before 2007 due to asset growth, though its capital position still remains relatively strong. However, given KK’s small size and lack of a strong institutional shareholder, external support should not be relied on.
Nonetheless, the bank’s strong capital buffers provide some cushion against an expected sharp economic slowdown in 2009, although a significant deterioration in liquidity or asset quality could trigger a ratings review. Funding diversification, higher competition and rising funding costs remain key medium-term risks.
KK was established as a finance company in 1971 and as a commercial bank in October 2005. Its primary business focus is auto hire-purchase lending and corporate loans, mainly to SME and residential property developers. The bank is 25% controlled by the Wattanavekin family, which has board and management representation.
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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