Bangkok--14 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of ‘AA(tha)’ to Krung Thai Bank Public Company Limited’s (KTB) subordinated unsecured debentures of up to THB13bn, with a maturity of 10 years. The Outlook of the bank is Stable.
Fitch notes that KTB’s ratings are underpinned by strong government ownership and support, as well as its improving financial strength, even though downside risks to KTB’s performance persist. KTB is Thailand’s second-largest bank (17% market share), with the Bank of Thailand’s (BOT) Financial Institutions Development Fund (FIDF) holding a 55%-stake. Given KTB’s size and importance to the financial system and economy, as well as its majority state-ownership and control, the agency believes there is a high probability KTB would receive state support, if needed. Although government ownership and control provide support to the long-term debt ratings, these factors could weaken the bank’s stand-alone financial performance due to its support of government policies.
In H109, KTB’s net profit declined to THB5.2bn (down 14% yoy) due to a sharp decline in dividend income from the Vayupak Fund and higher non-interest expense, although provisioning surprisingly fell. The net interest margin (NIM) fell to 3.4% (2008: 3.9%) due to a fall in interest rates and an increase in low-yielding interbank loans, while KTB’s ROA and ROE stood at 0.8% and 10.1%, respectively in H109. The bank’s performance and asset quality will likely weaken in 2009 due to Thailand’s severe economic downturn. Fitch projects a negative 3.1% GDP growth for Thailand in 2009, with a modest recovery to 3.0% by 2010.
In H109, KTB reported strong loan growth of 4.3% from end-2008 or 8.6% on an annualised basis compared with reported negative loan growth for the other major Thai banks, although majority of the loan growth were loans to government agencies. The bank’s NPLs rose moderately to THB88.7bn (8.1% of total loans) as of end-June 2009 from THB86bn (8.1% of total loans) at end-2008. Reserve coverage ratio at end-June 2009 remained low (41.2%), implying a risk of a jump in provisioning over the next six to 12 months, particularly given the weak economic environment.
KTB’s funding and liquidity remained stable as it has one of Thailand’s strongest local deposit franchises given that state enterprises and government employees deposit their savings mainly with KTB. The bank’s loan-to-deposit and liquid assets ratio stood at 88% and 26.1%, respectively at end-June 2009. KTB’s capital ratios also appear strong with a Tier 1 ratio of 9.8% and total capital ratios of 15.5% at end-June 2009. That said, high asset growth to support government economic stimulus and higher provisions may cause the capital ratios to fall over the next few years.
Contacts: Patchara Sarayudh, Bangkok, +662 655 4761; Vincent Milton, Bangkok, +662 655 4759;.
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.
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