Bangkok--26 Mar--Fitch Ratings
Fitch Ratings (Thailand) has placed Thanachart Capital Public Company Limited (TCAP), Thanachart Bank Public Company Limited (TBANK) and Siam City Bank Public Company Limited's (SCIB) on Rating Watch Positive (RWP) following the announcement of the planned acquisition of SCIB by TBANK with an expectation of the RWP being resolved in July 2010.
The acquisition will result in TBANK's consolidated assets increasing to about 9% of system assets, increasing systemic importance as the fifth largest banking group in Thailand. This should also be positive to TBANK's capital and funding profile and help improve the group's financial performance in the medium term through its stronger market position and franchise.
The central bank's Financial Institutions Development Fund (FIDF) entered into a Share Purchase Agreement with TBANK in March 2010 to sell its 47.58% stake in SCIB to TBANK at THB32.50 per share. The bank will also be making a tender offer for the remaining shares of SCIB during May-July. The total acquisition cost is estimated to be up to THB68.7bn with payment to be made by TBANK. The funding sources include: TBANK's THB35.8bn rights issue to be subscribed by its major shareholders (TCAP and Bank of Nova Scotia, BNS); THB7.1bn hybrid Tier 1 debt and THB6.0bn lower Tier 2 debt to be issued by TBANK (the hybrid Tier 1 debt will also be subscribed by TCAP and BNS); and THB19.7bn worth of liquid assets (mainly investment portfolio) to be liquidated by TBANK.
TBANK reported a net profit of THB4.1bn, a 115% growth yoy, with ROA of 1.1% due mainly to stronger revenue, lower loan loss provisions and significantly higher net interest margin (NIM) of 3.98% in 2009 (2008: 3.52%). Auto finance remains its core strength, representing 74% of its loan book at end-2009. Meanwhile, asset quality slightly deteriorated due mainly to weak economy, although remains stronger than peers, with NPL ratio of about 3%. Loan loss reserves, on the other hand, is stronger at 100% at end-2009 (2008: 89.8%). Capital also remains adequate with Tier 1 ratio of 8.65%.
TCAP reported a net profit in 2009 of THB3.5bn on a non consolidated basis and THB7.2bn on a consolidated basis with ROA of 1.7% (c.). Equity of THB 28.5bn or 62% of assets on a non consolidated basis at end-2009 is very strong. TCAP's leverage while increasing should remain relatively moderate. As a holding company, TCAP is reliant on TBANK's dividend payment, although the holding company should benefit from the stronger combined operating entity.
In 2009, SCIB's net profit was THB4.2bn and ROA was 1.0% Net interest margin declined slightly to 3.3% in 2009 (2008: 3.4%), on the back of low loan growth. SCIB's asset quality has deteriorated in the past few years, due to the bank's earlier aggressive lending amid weak economic conditions, although this appears to be stabilising in 2009 with a slight increase in impaired loans to THB25.9bn (up 6% yoy) at end-2009. SCIB expects lower impaired loans in 2010 due to loan restructuring, although downside risks remain due to the bank's high level of special mention loans (8.6% of total at end-2009). SCIB's capital appears relatively strong with Tier 1 ratio of 10.4% at end-2009.
TBANK is now the main operating entity within the Thanachart Group for commercial banking and other related financial services in securities, fund management and insurance. BNS 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.
SCIB was nationalised following the 1997 financial crisis, and in 2002, merged with another nationalised bank, Bangkok Metropolitan Bank. SCIB is the seventh-largest bank in Thailand, with a 4% share of loans and 5% share of deposits. SCIB has subsidiaries in insurance, securities, asset management and leasing businesses.
The following ratings have been placed on Rating Watch Positive:
Thanachart Capital Public Company Limited
Long-term National Rating: 'A-(tha)'
Short-term National Rating: 'F2(tha)'
Support Rating: '5'
Long-term National Rating of senior unsecured debentures: 'A-(tha)'
Thanachart Bank Public Company Limited
Long-term National Rating: 'A(tha)'
Short-term National Rating: 'F1(tha)'
Individual Rating: 'C/D'
Support Rating: '4'
Siam City Bank Public Company Limited
Long-Term Foreign Currency Issuer Default Rating: 'BB'
Short-Term Foreign Currency: 'B'
Individual Rating: 'D';
Support Rating: '4'
Support Rating Floor: 'B+'
Long-term National Rating: 'A-(tha)'
Short-term National Rating: 'F1(tha)'
Long-term National Rating of subordinated unsecured debentures: 'BBB+(tha)'
Application criteria available on Fitch's website at www.fitchratings.com: "Global Financial Institution Criteria" dated December 29, 2009; "Bank Holding Companies" dated December 30, 2009 and "National Ratings-Methodology Update" dated December 18, 2006.
Contacts: Narumol Charnchanavivat, Bangkok +662 655 4763; Patchara Sarayudh, Bangkok +662 655 4761; and Vincent Milton, Bangkok, +662 655 4759.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email:
[email protected].
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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