Bangkok--1 Oct--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Thanachart Bank Public Company Limited’s (TBANK) National Long-term at ‘A(tha)’ with Stable Outlook, National Short-term rating at ‘F1(tha)’, Individual rating at ‘C/D’ and Support rating at ‘4’. The agency has also affirmed TBANK’s holding company, Thanachart Capital Public Company Limited’s (TCAP) National Long-term at ‘A-(tha)’ with Stable Outlook, National Short-term rating at ‘F2(tha)’ and Support rating at ‘5’.
The affirmations reflect the benefits of Bank of Nova Scotia’s (Scotia, ‘AA-’/‘F1+’) increased stake in TBANK to 49% in February 2009 (from 25%); Thanachart Capital’s (TCAP) holding in TBANK was subsequently diluted to 50.9% from 74.9%. The agency notes that greater oversight and support of Scotia should help improve TBANK’s financial strength and performance in the medium-term. However, key concerns include funding constraints, weaker asset quality and high sector-concentration.
TBANK reported a net profit of THB1bn in H109, a 37% drop yoy despite stronger revenue, due to higher loan loss provisions (LLPs) and operating expenses from network expansion. The net interest margin (NIM) improved to 3.9% in H109 (2008: 3.5%) as a result of lower funding costs. NIM is expected to remain stable in H209 as interest rates have bottomed out, but could weaken in 2010 as monetary tightening begins.
Impaired loans at TBANK rose significantly to THB9.7bn (3.5% of total loans) at end-June 2009 from THB7.9bn (2.9%) at end-2008. While reserve coverage appears strong (end-June 2009: 92.8%), the severe economic downturn could result in further increases in NPLs and provisioning in H209 and 2010.
TBANK’s Tier 1 and total capital ratios rose to 8.9% and 12.9%, respectively, at end-June 2009 (2008: 8% and 11.2%, respectively) mainly due to a THB2bn rights issue in May 2009. The bank’s plan to acquire Siam City Bank, if successful, is expected to have minimal impact on its Tier 1 capital as most of the funding is likely to be supported by a capital injection from both TCAP and Scotia.
TBANK is now the main operating entity within the Thanachart Group (formerly National Finance) for commercial banking and other related financial services in securities, fund management and insurance. Scotia is Canada’s third-largest bank, with assets of over USD500bn and major businesses in Canadian and international banking as well as global capital markets and investment banking.
TCAP’s ratings reflect its continued low leverage, with scope to increase leverage to fund acquisitions. As TCAP’s remaining hire purchase portfolio runs down, the company will be more reliant on earnings growth and dividend payments from TBANK.
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, Vincent Milton, Bangkok, Tel: +662 655 4763/4759.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.