Bangkok--8 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned an ‘A+(tha)’ National Long-term rating to Bank of Ayudhya Public Company Limited’s (BAY: ‘AA-’/ F1+(tha)/ Stable) 10-year unsecured subordinated debentures of up to THB12bn with a greenshoe option of THB8bn.
The rating reflects BAY’s significantly stronger profitability improved asset quality, and the bank’s strong capital position, together with the operational and financial support of GE Capital International Holdings Corporation (GECIH), which holds a 33% stake in the bank. Also, BAY’s 2008 acquisition of Ayudhya Capital Auto Lease, a leading auto finance subsidiary of GECIH’s, and AIG Retail Bank, AIG Credit Card and GE Money in 2009 helped improve its retail exposure significantly to 42% of total loans at end-March 2010 (end-2007: 27%).
Despite the challenging operating environment, BAY reported a significant improvement in earnings in 2009 with net profit of THB6.7bn, a 55% yoy increase, mainly a result of lower funding costs and asset acquisitions; this was more fully reflected in Q110 with BAY reporting a yoy doubling in net income to THB2.1bn. BAY’s NIM improved to 5.5% in Q110 (2009: 4.3%), although it could fall in 2010 given pressures on asset yields and still weak loan demand. BAY reported higher provisions in Q110 of THB3.2bn or 2.1% of average gross loans (2009: 1.8%) and is likely to face a further jump in provisioning in 2010 given the escalated political turmoil and its negative impact on economic growth, particularly hotel and retail sectors. While ROA has improved to 0.9% in 2009 (2008: from 0.6%), higher provisioning could have some impact on its profitability in 2010, although Fitch notes that Q110 was still resilient at 1.1%. Cost-to-income ratio has also improved steadily to 52.5% in Q110 over the last few years and is now more in line with peers.
Asset quality has gradually improved - NPLs declined steadily to THB50.9bn (8.4% of total loans) at end-March 2010 from THB52.5bn (8.7%) at end-2009. This was largely due to ongoing NPL restructuring. Fewer NPLs, coupled with increased provisioning in 2009 and Q110, resulted in improved reserve coverage to 78.2% at end-March 2010 (end-2008: 58.0%), which is now in line with the industry average. The bank could face renewed asset quality pressures in 2010 due to its exposure to tourism-related sector as well as consumer loans (42% of loans), which are expected to be most affected by the civil unrest.
GECIH’s investment of THB32bn and additional warrant conversions of THB9.7bn in 2007 resulted in BAY having one of the strongest capital positions of Thai banks. While the ratios have declined following a series of acquisitions, its capital remains strong with Tier 1 ratio of 11.75%, and total capital ratio of 14.50% at end-March 2010.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank, with 579 branches and a 9.6% market share in lending and 8.1% in deposits. Its key subsidiaries are auto finance, credit card, consumer finance, securities and fund management. Given BAY’s relatively large share of deposits and loans, there is a moderate probability of government support, should this be needed.
Applicable criteria available on Fitch’s website at www.fitchratings.com: “Global Financial Institutions Criteria”, dated December 29, 2009; and “National Rating-Methodology Update”, dated December 18, 2006.
Contacts: Narumol Charnchanavivat, Vincent Milton, Bangkok, +662 655 4763/4759.
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.
Additional information is available at www.fitchratings.com.
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