Bangkok--5 Mar--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 THB10.4bn, with a maturity of 10 years. The Outlook is Stable.
Fitch notes that KTB's ratings ('AA+(tha)'/Stable) are underpinned by strong government ownership and support, as well as by its improving financial strength, despite persistent risks to KTB's performance. KTB is Thailand's second-largest bank (18% 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 bank's Long-term debt ratings, these factors could weaken its stand-alone financial performance given its support of government policies.
Despite a sharp domestic economic slowdown in 2009, KTB's net profit remained stable at THB12.2bn (2008: THB12.3bn), although this was mainly due to lower provisions. Net interest income dropped to THB42.5bn in 2009 (2008: THB45.8bn) on the back of lower yields, a fall in loan growth and an increase in low yielding interbank loans. As a result, KTB's net interest margin narrowed to 3.2% in 2009 from 3.9% a year earlier. The bank's ROA and ROE remained relatively stable at 0.9% and 11.4%, respectively, in 2009.
KTB's impaired loans remained high at THB85.5bn, or 8%, of total loans at end-2009 (end-2008: THB86bn or 8.2%). The bank's reserve coverage ratio improved to 47.3% (end-2008: 41.4%), though is still weak compared with the industry average of about 70%.
Although an improving domestic economic environment - Fitch projects Thailand GDP growth of 3% in 2010 (2009: -2.3%) downside risks to asset quality remains, given the still weak economic conditions. KTB's low loan loss coverage ratio and a weak economy could lead to an increase in provisions. As a result, provisioning could continue to affect profitability.
KTB's funding and liquidity remain stable as it has one of Thailand's strongest local deposit franchises as most state enterprises and government employees deposit their savings with the bank. The bank's loan-to-deposit ratio improved to 89.1% at end-2009 (end-2008: 98.5%) as loan growth slowed. KTB's capital ratios also appear strong with a Tier 1 ratio of 10.1% and total capital ratios of 15.9% at end-2009. Under an expected low stress scenario, capital ratios should remain adequate, although profitability would be affected by higher provisions.
Application criteria available on Fitch's website at www.fitchratings.com: "Global Financial Institution Criteria" dated December 29, 2009; and "National Ratings-Methodology Update" dated December 18, 2006.
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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