RPT-Fitch affirms Krung Thai Bank's rating at 'BBB'; outlook stable
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Oct 28 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Krung Thai Bank Public Company Limited's (KTB) Long-Term Foreign-Currency Issuer Default Rating (LT FC IDR) at 'BBB' and National Long-Term Rating at 'AA+(tha)'. The Outlooks are Stable. A full list of rating actions is provided at the end of this comment.
KEY RATING DRIVERS
KTB's IDRs, Support Rating, Support Rating Floor, and National Ratings reflect Fitch's belief of a high probability of support from the government, if needed. KTB is the only commercial bank that is majority-owned by the government, with past evidence of close state control and capital support. In this regard, the government could influence KTB to also perform certain policy functions in future, if required. Furthermore, as one of Thailand's largest banks, KTB is systemically important to the financial sector. The Stable Outlook is underpinned by expectations there will be no near-term change in the prospects of government support.
KTB's Viability Rating (VR) of 'bbb-' takes into account its sound deposit franchise and improving financial performance. Profitability, which in the past had been modest compared to similarly rated peers, has continued to improve, and this has allowed the bank to make higher provisions and boost reserve coverage. Moreover, Fitch expects this trend to continue even though the relatively weak economic environment and rising household leverage in Thailand could lead to greater pressure on provisioning costs going forward.
The bank's key indicators such as non-performing loans (NPLs) and capitalisation are also now in line with its domestic peers', though they are still slightly weaker than its international peers'. Nevertheless, Fitch deems KTB's current capital buffers as acceptable, providing that growth and risk appetite is managed.
RATING SENSITIVITIES - IDR, National Ratings and VR
A change in Thailand's sovereign ratings (BBB+/Stable) could lead to rating actions on KTB's Support Rating Floor and IDRs, but this is not expected in the medium term. Meanwhile, negative rating action could also occur if there is a reduction in the government's shareholding, or any other evident reduction in its propensity to support the bank.
KTB's VR could be negatively affected by a reversal of the current positive trends in asset quality and capital, which could widen the gap between KTB and its peers. This could come from more ambitious credit growth and/or risk appetite. At the same time, further sustained improvement in its financial performance could lead to some upside to the VR, although this is unlikely in the medium term.
Any changes in KTB's IDR would have a similar rating impact on KTB's senior unsecured EMTN programme, its senior unsecured notes, and its national subordinated debt rating. This potentially would also impact KTB's national ratings. Changes in KTB's VR could impact the ratings on KTB's legacy hybrid Tier 1 securities, which are Basel II-compliant and include a non-cumulative coupon deferral feature that could be triggered upon the bank posting a loss. As of June-2013, KTB was Thailand's second-largest commercial bank by assets, with a market share of over 15%. KTB has an extensive presence across the country, operating 1,124 domestic branches.
KTB's ratings have been affirmed as follows:
- Long-Term Foreign-Currency IDR at 'BBB'; Stable Outlook
- Short-Term Foreign-Currency IDR at 'F3'
- Viability Rating at 'bbb-'
- Support Rating at '2'
- Support Rating Floor at 'BBB'
- National Long-Term Rating at 'AA+(tha)'; Stable Outlook
- National Short-Term Rating at 'F1+(tha)'
- Senior unsecured USD 2.5bn EMTN programme at 'BBB'
- Senior unsecured notes at 'BBB'
- International rating for hybrid Tier 1 securities at 'B'
- National rating for THB 30bn Short-Term Debenture Programme at 'F1+(tha)'
- National subordinated debt rating at 'AA(tha)'
- National rating hybrid Tier 1 securities at 'BBB(tha)'
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