Fitch Publishes SME Development Bank of Thailand's 'BBB+' Rating; Outlook Stable

Tue Jan 21, 2014 11:24pm EST

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(The following statement was released by the rating agency) BANGKOK/SINGAPORE, January 21 (Fitch) Fitch Ratings has published the Small and Medium Enterprise Development Bank of Thailand’s (SME Bank) Long-Term Issuer Default Rating (IDR) of ‘BBB+’ with Stable Outlook. Fitch has also affirmed SME Bank’s National Long-Term Rating at ‘AAA(tha)’. A full list of rating actions is provided below. KEY RATING DRIVERS SME Bank’s Long-Term IDR is at the same level as the Thai sovereign because of its strong linkages to the government, which leads Fitch to believe there would be a high probability of state support in the event of need. The ratings are underpinned by the bank’s strategic role in supporting small businesses, its legal status as one of Thailand’s specialized financial institutions, near-full ownership by the Thai Ministry of Finance, and a history of state support. SME Bank reported losses in 2012 after its non-performing loans ratio doubled to some 30% of loans due to underwriting lapses. In response, the government injected capital in 2Q13, which helped the bank’s total capital adequacy ratio to improve to 5.28% by September 2013 (from 3.28% at end-2012). SME Bank’s rehabilitation is being overseen by the Ministry of Finance, which is evidence of continued close state control. RATING SENSITIVITIES SME Bank’s Long-Term IDR, Short-Term IDR and Support Rating Floor (SRF) would generally move in tandem with changes in the Thai sovereign rating. However, the Support Rating would not necessarily be impacted by a sovereign rating downgrade because the minimum SRF associated with a Support Rating of ‘2’ is ‘BBB-’. SME Bank’s National Ratings would likely not be affected by a change in the Thai sovereign rating, because the sovereign would still have the lowest default risk within the country. SME Bank’s ratings, both on the international and national scales, would be negatively affected by any perceived change in the propensity or ability of the Thai government to support the bank. For example, this may include a refusal to provide additional capital or funding support, a material reduction in direct state ownership, any reduction in supervisory oversight, or a significant change in legal status. However, in Fitch’s view, such adverse developments are unlikely in the near term due to the bank’s key policy role. The ratings actions are as follows: Long-Term IDR: published at ‘BBB+’; Stable Outlook Short-Term IDR: published at ‘F2’ Support Rating: published at ‘2’ Support Rating Floor: published at ‘BBB+’ National Long-Term Rating: affirmed at ‘AAA(tha)’; Stable Outlook National Short-Term Rating: affirmed at ‘F1+(tha)’ Contacts: Primary Analysts Ambreesh Srivastava (International Ratings) Senior Director +65 6796 7218 Fitch Ratings Singapore PTE Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Parson Singha, CFA (National Ratings) Senior Director +662 108 0151 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road, Lumpini Patumwan, Bangkok 10330 Secondary Analysts Parson Singha, CFA (International Ratings) Senior Director +662 108 0151 Piyamas Chaihetphon, CFA, CPA (National Ratings) Associate Director +662 108 0153 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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 Institutions Rating Criteria� dated 15 August 2012, and ‘National Scale Ratings Criteria’ dated 30 October 2013, are available on www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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