TRIS Rating Co., Ltd. has maintained the ratings of Thanachart Bank PLC (TBANK) and its bills of exchange (B/E) at “A+”and has also affirmed the ratings of TBANK’s subordinated debentures at “A”. At the same time, TRIS Rating has assigned “A-” ratings to TBANK’s proposed issues of up to Bt5,000 million in hybrid debt capital securities. The outlook is “stable”. The ratings reflect TBANK’s strong business profile, supported by its management’s capability and experience in core business, hire purchase, and its enlarged networks and appropriate business platform to strengthen Thanachart Group’s business synergy. The ratings are also enhanced by TBANK’s strong credit profile of its new strategic partner, Bank of Nova Scotia (BNS), Canada, with a 48.99% stake. However, these strengths are constrained by the unfavourable economy and banking business environment, uncertainty in the securities industry, and intensifying competition in the consumer finance industry, which might limit the group’s business expansion and profitability.
The “A-” ratings for TBANK’s proposed issues of up to Bt5,000 million in hybrid debt capital securities reflect both the subordination and payment deferral risks of the issues. The hybrid debt capital securities are due in 2019 and 2024, and are cumulative, junior subordinated, unsecured, and callable before maturity dates by the bank after five years under the approval from the Bank of Thailand. The holders of hybrid debt capital securities will be subordinated to depositors and holders of senior debts and subordinated debts of the bank. The bank will not be obliged to make any payment in the event that the bank posts net losses for the same six-month period during which any interest payment would be due or payable and the bank is unable to pay dividend during such period or during the next six months, but coupon payment will be cumulative. Such non-payment will not constitute a default by the bank.
The “stable” outlook recognizes TBANK’s designated role as the group’s core financial and banking operator. The outlook also takes into account the expectation that TBANK will be able to maintain its strong market position in its major business, HP lending, with controllable asset quality. Driving force for fee income growth and the group’s cost synergy are expected to help offset the rising investment in additional branch network during the expansion phase.
TRIS Rating reported that during 2005-2008, TBANK succeeded in establishing a physical branch network, ATM pools, and foreign exchange booths. Efficient utilization of its branch network has been gradually improved, resulting in further improvement in the group’s market position, business diversification and financial performance in 2008. In July 2007, Thanachart Capital PLC (TCAP), the bank’s parent company, entered into a joint venture agreement with BNS for investment in TBANK, which made changes in TBANK’s shareholder structure. As of 31 March 2009, TBANK’s shareholding stake was 50.92% held by TCAP and 48.99% held by BNS. TBANK’s business profile and financial performance have been supported by its appropriate business platform and strategic assistant from BNS. TBANK is well equipped to succeed in the auto hire purchase (HP) business and it executed improvement in its group synergy. The strong team of HP staff and an efficient operating system have enabled the bank to maintain the largest player position in the HP market. As a result of the bank’s appropriate group strategies, business and financial performance of the bank and its subsidiaries continue to improve. An increase in bundled products and cross selling strategies of the bank strengthened market position of key subsidiaries related to securities, fund management, leasing, life insurance and non-life insurance businesses.
As of March 2009, on a consolidation basis, TBANK’s total loans and accrued interest receivables were Bt269,960 million, fell 2.34% from Bt276,430 million as of December 2008. Under the economic slump, in the first quarter of 2009, TBANK posted a slow growth in HP lending, rising by only 1.5% to Bt206,890 million from Bt203,829 million as of 31 December 2008. Of the total gross loans (without accrued interest), HP lending accounts for 77%, in line with TBANK’s strategy to position as the market leader in auto HP lending. In the future, the bank plans to grow more on corporate loans.
On a consolidation basis, its four main businesses (HP, insurance, securities and asset management) have enabled TBANK to fully diversify the revenue base. As of 31 March 2009, non-interest income accounted for 50% of total income, remaining stable as in December 2008, due mainly to the constantly high revenue from insurance business. Even though the non-performing loans of the bank has increased from the economic condition, its net interest spread has been improving continuously from 3.1% in 2008 to 3.2% (annualized) in the first quarter of 2009.
Regarding TBANK’s funding structure, TRIS Rating said that the bank also succeeded in its funding restructuring plan. The bank has significantly expanded the size of savings deposits with more diversified retail deposits. The savings deposits are considered as a stable and cheap funding source for commercial banks. As of December 2008, the bank’s total deposits increased by 43% from 2007 and savings accounts were more than 27% of total deposits. However, the deposits dropped slightly by 1.2% in the first quarter of 2009 as the bank has no policy to grow assets during economic slowdown. The bank still has excess liquidity and continues to be a net lender in the interbank market.
After recapitalization with entry of BNS in July 2007, TBANK’s capital base was stronger, as reflected by an increase in the ratio of equity to total assets from 5.9% in 2006 to 7.0% in 2007. However, the ratio reduced to 5.6% as the bank’s assets grew strongly by 25.8% in 2008. At the same time, the bank’s BIS ratio increased from 11.13% to 12.00% and also increased to 12.12% in 2008 (according to the Basel II standard, the bank’s BIS ratio was 11.18% in 2008). At the end of March 2009, TBANK’s BIS ratio according to the Basel II increased to 11.33%.
As TBANK had a good asset quality and sufficient allowance for possible loan losses, its ratio of non-performing assets (classified loans more than three months pass due, outstanding amount of troubled debt restructuring and foreclosed property) was only 0.3 times its capital fund and allowance for loan loss, which provides sufficient cushion against downside risk from adverse changes in operating environment, said TRIS Rating. -- End