Bangkok--9 Sep--Fitch Ratings
Fitch Ratings (Thailand) has upgraded the ratings of Thanachart Bank Public Company Limited (TBANK), Thanachart Capital Public Company Limited (TCAP), and Siam City Bank Public Company Limited (SCIB) and removed them from Rating Watch Positive (RWP) following TBANK’s acquisition of SCIB in Q210. The three entities’ ratings had been placed on RWP after TBANK’s announcement of its planned acquisition of SCIB. Fitch also affirmed the Individual rating of TBANK at ‘C/D’ and withdrew the Individual rating and Support Rating Floor of SCIB. Details of the rating actions are listed further below.
The upgrade of TBANK’s National ratings is supported by improvements in its market position, capital, liquidity and financial performance, while the upgrade of its Support Rating is based on the greater systemic importance of the combined entity. The ratings of TCAP were also upgraded to reflect the greater benefits expected from the stronger operating subsidiary. TCAP is currently rated one notch below TBANK, given structural subordination and TCAP’s strong stand-alone financial strength. At the same time, the ratings of SCIB have been equalised to those of TBANK given the acquisition and consolidation. The Outlook on TBANK and TCAP’s National ratings and SCIB’s Long-term Foreign-currency Issuer Default Rating (IDR) and National ratings have been revised to Stable. Future rating actions for TBANK will depend on post-integration performance.
TBANK is the main operating entity within the Thanachart Group. TCAP currently holds 50.9% of TBANK. Bank of Nova Scotia (BNS) (BNS: ‘AA-’/‘F1+’), Canada’s third-largest bank, increased its stake in TBANK to 49% in February 2009 (from 25%). The greater oversight and support of BNS has helped to improve TBANK’s financial strength and performance since 2009. Apart from showing its long-term commitment through the capital contributions for the acquisition of SCIB in 2010, BNS has been actively involved with the acquisition and integration process underway.
Following TBANK’s acquisition of SCIB, the merged bank’s systemic importance has increased as it becomes the sixth largest bank in Thailand with an estimated asset value of THB829.7bn. The acquisition also resulted in a more diversified loan book, with combined retail lending accounting for 56% of total loans, compared to 79% at TBANK pre-acquisition. Auto hire purchase remains TBANK’s core strength, representing 39% of the merged loan book. Corporate lending (44% of total), comprises mainly SCIB’s loans to large corporate and small and medium sized enterprises (SMEs). TBANK’s funding profile should also improve, with the stronger deposit franchise of SCIB.
Profitability measures have also improved with TBANK reporting a consolidated net profit of THB4.4bn in H110, compared to THB1.0bn in H109. Annualised return on assets (ROA) improved to 1.57% in H110 from 1.06% in 2009, while net interest margin (NIM) also improved to 4.34% in H110 from 3.98% in 2009 given the lower funding costs supported by SCIB’s stronger deposit franchise. TBANK’s capital position has been strengthened given SCIB’s stronger capital position, with TBANK’s Tier 1 ratio and total capital ratio rising to 11.8% and 15.0%, respectively, at end-June 2010 (end-March 2010: 8.7% and 13.6%). The THB18.5bn goodwill arising from the SCIB acquisition has not been deducted from TBANK’s Tier 1 capital, given that the Bank of Thailand has allowed the goodwill to be deducted after completion of the integration process by end-2011. The bank expects its Tier 1 ratio to be still maintained at not less than 8% after deduction of goodwill in 2012.
On the other hand, asset quality measures are now weaker due to the higher non-performing loans (NPLs) at SCIB. The combined gross NPLs of TBANK and SCIB rose to THB35.5bn (6.2% of total loans) at end-June 2010 from THB8.4bn (2.9%) at end-2009. Loan loss reserves coverage declined to 75.6% of impaired loans at end-June 2010, compared with industry average of about 80%. Further provisioning on SCIB’s portfolio may be needed as special mention loans remain high (8.2% of total loans at end-June 2010), although Fitch believes any increase in provisions required for loan deterioration should be adequately managed by the enlarged profitability of the combined entities.
On a standalone basis, TCAP reported a moderate decline in net profit of THB2.7bn, 14% lower yoy, due to higher interest expense (from increased borrowings for the purpose of acquisition) and lower gain on investments (TCAP reported gain from sale of its stake in TBANK to BNS in 2009). TCAP’s double leverage has increased significantly to 111% at end-June 2010 from 49% at end-2009 due to the acquisition of SCIB, although this should remain stable over the next few years given no plans to make additional acquisitions or to raise equity. TCAP’s equity of THB 28.5bn or 66% of assets at end-June 2010 remains very strong. As a holding company, TCAP is reliant on TBANK’s dividend payment, although it should benefit from stronger dividend income from the combined operating entity.
Upon completion of integration process, Fitch expects to withdraw the other ratings on SCIB.
The following ratings have been upgraded:
Thanachart Bank Public Company Limited
Long-term National Rating: ‘A+(tha)’ from ‘A(tha)’, Outlook Stable
Short-term National Rating: ‘F1+(tha)’ from ‘F1(tha)’
Support Rating: ‘3’from ‘4’
Thanachart Capital Public Company Limited
Long-term National Rating: ‘A(tha)’ from ‘A-(tha)’, Outlook Stable
Short-term National Rating: ‘F1(tha)’ from ‘F2(tha)’
Long-term National Rating of senior unsecured debentures: ‘A(tha)’ from ‘A-(tha)’
Siam City Bank Public Company Limited
Long-Term Foreign Currency Issuer Default Rating: ‘BBB-’ from ‘BB’, Outlook Stable
Short-Term Foreign Currency: ‘F3’ from ‘B’
Support Rating: ‘3’ from ‘4’
Long-term National Rating: ‘A+(tha)’ from ‘A-(tha)’, Outlook Stable
Short-term National Rating: ‘F1+(tha)’ from ‘F1(tha)’
Long-term National Rating of subordinated unsecured debentures: ‘A(tha)’ from ‘BBB+(tha)’
The following rating has been affirmed:
Thanachart Bank Public Company Limited - Individual Rating: ‘C/D’
Thanachart Capital Public Company Limited - Support Rating: ‘5’
The following rating has been withdrawn:
Siam City Bank Public Company Limited
Individual Rating: ‘D’
Support Rating Floor: ‘B+’
Contact:
Primary Analyst
Narumol Charnchanavivat
Director
+662 655 4763
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Vincent Milton
Senior Director
+662 655 4759
Bangkok
Committee Chairperson
Jonathan Cornish
Senior Director
+852 2263 9901
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
Applicable criteria, "Global Financial Institution Criteria" dated December 29, 2009; "Bank Holding Companies" dated December 30, 2009; "National Ratings-methodology Update" dated December 18, 2006 are available on Fitch's website at www.fitchratings.com.
Related Research:
Global Financial Institution Criteria
Bank Holding Companies
National Ratings-methodology Update
Fitch Places TCAP, TBANK and SCIB on Rating Watch Positive
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.