RPT-Fitch Affirms Ratings on 5 Thai Subsidiaries of Foreign Banks

Tue Mar 25, 2014 4:42am EDT

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March 25 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the National Long-Term ratings of five Thai subsidiaries of foreign-owned banks. United Overseas Bank (Thai) Public Company Limited (UOBT), Industrial and Commercial Bank of China (Thai) Public Company Limited (ICBCT) and ICBC (Thai) Leasing Company Limited (ICBCTL) have been affirmed at 'AAA(tha)'; Maybank Kim Eng Securities (Thailand) Public Company Limited (MBKET) affirmed at 'AA(tha)' and CIMB Thai Bank Public Company Limited (CIMBT) affirmed at 'AA-(tha)'. The Outlooks are Stable, except for the rating on MBKET, which has a Negative Outlook.

Fitch has also affirmed UOBT's and CIMBT's Long-Term Foreign-Currency IDR at 'A-' and 'BBB', respectively. A full list of rating actions is included at the end of this commentary.

KEY RATING DRIVERS

The National ratings of UOBT, ICBCT, MBKET, and CIMBT, as well as the IDRs and Support Ratings of UOBT and CIMBT, reflect Fitch's belief of a high probability of extraordinary support, if required, from their respective parent banks, United Overseas Bank Limited (UOB; AA-/Stable), Industrial and Commercial Bank of China (ICBC; A/Stable), Malayan Banking Berhad (Maybank; A-/Negative), and CIMB Bank Berhad (CIMB). Fitch considers the Thai subsidiaries to be strategically important to the parents due to the high levels of operational integration, past histories of financial support and near-full ownership.

The National ratings of ICBCTL reflect Fitch's view that it is a core subsidiary of ICBCT. ICBCTL has a key role in implementing the bank's retail strategy and its contribution to the bank is substantial. ICBCTL accounted for 38% of ICBCT's consolidated loan portfolio as of end-2013.

The Outlooks for UOBT, ICBCT, ICBCTL, and MBKET are consistent with that of their parents. The Stable Outlook for CIMBT reflects Fitch's expectation that the parent bank's ability and propensity to provide extraordinary support to CIMBT is unlikely to change over the next one to two years.

UOBT's Viability Rating (VR) of 'bb+' reflects its modest (though improving) domestic franchise, and weaker funding and profitability compared with higher-rated Thai banks. It also takes into consideration UOBT's sound risk management culture and effective system (supported by UOB), as well as UOBT's strong capital position.

CIMBT's VR of 'bb-' is based on its limited franchise, as well as relatively weaker asset quality and capitalisation indicators compared with local and international peers. There have been some improvements in key financial measures, and Fitch expects CIMBT's overall credit profile to remain in line with similarly rated peers.

CIMBT's Thai baht-denominated subordinated Upper Tier 2 debt is currently rated two notches below CIMBT's National Long-term Rating, based on the debt's subordination and coupon deferral feature. Its subordinated unsecured debt (Lower Tier 2) is rated one notch below. The notching for these debts instruments reflects their subordination in the capital structure and is in line with Fitch's rating approach for such instruments.

RATING SENSITIVITIES - National Ratings, IDRs and Support Ratings

Negative rating action on the IDRs on UOB, ICBC, and Maybank could lead to similar action on their subsidiaries' ratings. A material change in the parent banks' ability and/ or propensity to support their Thai subsidiaries could also have an impact on the subsidiaries' ratings. For example, a significant reduction in group shareholding in the subsidiary could result in negative rating action.

A material improvement in CIMB's credit profile may result in an upgrade of CIMBT's IDRs and National Ratings; conversely a significant deterioration may result in downgrades.

Since UOBT's Long-Term Foreign-Currency IDR is constrained by Thailand's 'A-' country ceiling, any changes in the country ceiling could lead to complementary movements at UOBT's IDR.

The National Long-Term Ratings for UOBT, ICBCT, and ICBCTL are already the highest on the national scale, and hence there is no upside. An upgrade of Thailand's Long-Term Local-Currency IDR, while ICBC's ratings remain unchanged, may result in a downgrade of ICBCT's and ICBCTL's National Ratings.

RATING SENSITIVITIES - Viability Ratings

There is potential upside to UOBT's VR, if it can show further sustainable improvement in profitability that comes from prudent growth rather than increased risk appetite. However, the scope for upside would remain limited as long as key ratios remain modest compared with international peers'. Meanwhile, a significant worsening in performance that impacts capitalisation and asset quality could put downward pressure on UOBT's VR.

CIMBT's VR could be positively affected by material and sustained improvements in its overall financial strength compared with peers'. This may be visible through key financial measures such as asset quality, liquidity and capital.

There could be downside to the VR if there is a major deterioration in financial performance and a weakening of capital ratios to below peer averages. However, Fitch does not expect any shifts to occur imminently.

UOB has a 99.7% stake in UOBT. CIMB has a 93.7% stake in CIMBT. ICBCT is 97.7%-owned by ICBC. ICBCTL is 99.99%-owned by ICBCT. MBKET is 83.5% owned by the Maybank group. UOBT is the eighth largest commercial bank in Thailand, CIMBT is the 10th largest, and ICBCT is the 13th largest, in terms of total assets as of end-2013.

The list of ratings actions is as follows:

UOBT:

- Long-Term Foreign Currency IDR affirmed at 'A-'; Outlook Stable

- Short-Term Foreign Currency IDR affirmed at 'F2'

- Viability Rating affirmed at 'bb+'

- Support Rating affirmed at '1'

- National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable

- National Short-term Rating affirmed at 'F1+(tha)'

CIMBT:

- Long-Term Foreign Currency IDR affirmed at 'BBB'; Outlook Stable

- Short-Term Foreign Currency IDR affirmed at 'F3'

- Viability Rating affirmed at 'bb-'

- Support Rating affirmed at '2'

- National Long-term Rating affirmed at 'AA-(tha)'; Outlook Stable

- National Short-term Rating affirmed at 'F1+(tha)'

- National Short-term debts affirmed at 'F1+(tha)'

- Upper tier 2 debt affirmed at 'A(tha)'

- Lower tier 2 debt affirmed at 'A+(tha)'

ICBCT:

- National Long-term Rating affirmed at 'AAA(tha)'; Outlook Stable

- National Short-term Rating affirmed at 'F1+(tha)'

ICBCTL:

- National Long-Term Rating affirmed at 'AAA(tha)'; Stable Outlook

- National Short-Term Rating affirmed at 'F1+(tha)'

- National Long-Term guaranteed bonds by ICBCT affirmed at 'AAA(tha)' ; Stable Outlook

- National Long-Term senior unsecured bonds affirmed at 'AAA(tha)'

- National Short-Term unsecured unsubordinated debenture programme affirmed at 'F1+(tha)'

MBKET:

- National Long-Term Rating affirmed at 'AA(tha)'; Negative Outlook

- National Short-Term Rating affirmed at 'F1+(tha)'

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