Bangkok--28 Sep--TRIS Rating
TRIS Rating Co., Ltd. has assigned a rating of “A” to the proposed issue of up to Bt10,000 million in subordinated debentures of TMB Bank PLC (TMB). At the same time, TRIS Rating has affirmed the company rating of TMB at “A+” and has affirmed the ratings of TMB’s subordinated debentures at
“A” and hybrid Tier-1 securities at “BBB+”. The outlook remains “stable”. The “A+” and “A” ratings for company and subordinated debentures of TMB reflect the bank’s capable management team and ongoing support from its major shareholders. As a strategic partner, ING Bank N.V. actively manages TMB and is expected to help strengthen TMB’s franchise value and financial profiles. TMB has leveraged ING Bank’s know-how in risk management and strengths in retail banking, insurance and asset management services, which are the keys to future growth. TMB also has strong capital funds that will be a cushion to absorb certain unexpected losses from future risks associated with adverse changes in the operating environment. However, these strengths are pressured by high legacy non-performing assets (NPA), uncertainty during the internal transformation period and an unfavorable economic and business environment, which will limit business and profitability growth.
The “BBB+” rating for TMB’s hybrid Tier-1 securities reflects both the subordination and payment deferral risks of the issue. The hybrid Tier-1 securities are perpetual, noncumulative, subordinated, unsecured, and callable by the bank after five years and every six months thereafter. The holders of hybrid Teir-1 securities will be subordinated to depositors and holders of senior debts and subordinated debts of the bank. The bank will not be obliged to make any payment in the event that the bank reports net losses for the accounting period before any interest payment would be due or payable. Such non-payment will not constitute a default by the bank.
The “stable” outlook reflects the expectation of improvement in TMB’s asset quality, profitability and liquidity in the medium term. Support from ING Bank is expected to enhance TMB’s risk management system and practices, franchise value and competitive edge, and to generate steady earnings in the medium term. However, the ability to achieve the three-year business plan under the new management team has yet to be proved.
TRIS Rating reported that as of June 2009, TMB was the sixth largest commercial bank in Thailand in terms of assets, with 6% market share in loans and 6% share in deposits. TMB’s major shareholders are ING Bank (which includes ING Support Holding) and the Ministry of Finance (MOF), which held 30.1% and 26.1% of the shares as of 9 March 2009, respectively. For the first half of 2009, the bank reported net profit of Bt829 million, which was better than the net profits of Bt424 million for the whole year 2008. Excluding extraordinary income from the Bt2,301 million gains from early redemption of US currency hybrid Tier-1 securities, TMB, however, had net losses of Bt1,463 million. TMB’s net income for 2009 is expected to improve from 2008. Although TMB has been implementing the staff realignment program and will complete the early retirement scheme by September 2009, the bank has set aside a portion of provisioning expenses for the scheme in 2008.
On 7 May 2009, TMB entered the agreement to sell Bt20,000 million of non-performing loans (NPLs) and NPAs to Bangkok Commercial Asset Management Co., Ltd. (BAM). Although the bank’s NPLs decreased by 14% to Bt60,000 million as of June 2009 from about Bt70,000 million as of December 2008, the loans outstanding also declined by the same rate. Therefore, TMB’s ratio of NPLs to total loans was unchanged, sustaining at around 14% as of June 2009. This level is far above the industry average of 7% for the 12 universal banks. NPAs (classified loans that are more than three months past due, plus the outstanding amount of troubled debt restructurings and foreclosed property) also sustained at around 0.9 times its capital fund and allowance for doubtful accounts, which was in line with the industry average of 0.8 times. However, the management team will further face challenges to improve asset quality and to grow the base of profitable assets amid unfavorable economic conditions.
TRIS Rating said, TMB’s total funding as of June 2009 were Bt537,000 million, of which 75% were deposits, 12% were borrowings (mostly in terms of subordinated debt issues, bills of exchange, and promissory notes), 9% were shareholders’ equity and 4% were borrowings from interbank and money markets. The proceeds from the proposed of up to Bt10,000 million subordinated debentures will be used to buy the Bt8,000 million subordinated debentures (TMB153A) and for business expansion.