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June 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings (Thailand) has affirmed Thailand-based SCB Asset Management Co., Ltd's (SCBAM) National Asset Manager Rating at 'Highest Standards (tha)'. The Outlook is Stable.
KEY RATING DRIVERS
The affirmation of SCBAM's rating is driven by the company's established history of fund management, its strong domestic market position and support from its sole shareholder - Siam Commercial Bank Public Company Limited (SCB; AA(tha)/Stable/F1+(tha)). SCBAM also benefits from its parent's distribution capacity and extensive resources in risk management, compliance and IT.
The rating also takes into account SCBAM's experienced senior management and investment staff, with staff turnover in equity investment management improving in 2013. The rating is further supported by a solid control framework, formalised investment process, and increased automation in front-office functions after IT upgrades were completed in December 2013. Middle and back office functions have also been upgraded in prior years.
The main challenges facing SCBAM are expanding its market share and assets under management (AUM) amid intensifying competition. There is also scope for improving the performance of its equity funds, and for ensuring integration across systems following recent front-office upgrades.
SCBAM's 'Highest Standards (tha)' rating is based on the following category scores:
Asset manager operations in the 'Highest Standards' National Scale category demonstrate an operational framework that Fitch considers superior relative to domestic institutional standards.
SCBAM benefits from stable ownership by its sole shareholder, SCB, which has expressed full commitment to the asset management business and demonstrated operational and financial support for SCBAM. Although its products are predominantly fixed-income and money-market funds, SCBAM has diversified to local equity funds, mixed funds investing domestically and globally, multi-asset class investment including global funds, as well as risk target funds. SCBAM has also become more customer-centric in its products for institutional provident and private fund clients.
SCBAM's risk management and control framework is strong and governed by SCB, using the latter's extensive staff, tools and expertise. Operational and investment risks are managed through close coordination between SCBAM's risk management committee and SCB's risk management division. Risk monitoring is further bolstered by SCBAM's pre- and post-trade compliance. Its pre-trade checks have improved following recent upgrades in its front-office system.
SCBAM's investment process is formalised, marked by in-depth research, disciplined buy-and-sell process, formal portfolio reviews and documentation of investment decisions. Investment decisions are derived from its fundamental analysis as well as quantitative approaches. Fixed income investment remains its key strength, outperforming benchmarks in 2013. However, the credit analyst workload appears heavy. The equity investment process has been impacted by the departure of senior-level staff in prior years. Equity performance in 2013 has been relatively weak amid efforts to refine its equity investment approach.
SCBAM's reporting services to investors are in compliance with regulation and in line with local practice. It has improved communication with provident fund clients, including on-line accessibility. In 2014, SCBAM will be a registrar for provident funds under its management, whereby information on subscription and redemption will automatically be reflected in the company's portfolios, helping to reduce the scope for input error. SCBAM has conducted detailed fund analysis (including performance attribution and key risk indicators), but, to date, it has been mainly for internal use.
SCBAM benefits from SCB's extensive IT resources and a system upgrade of front, middle, and back-office operations. This has allowed SCBAM to handle more complex assets. For 2014, SCBAM is considering further improvements for its risk-management tools, pending selection of key vendors.
Incorporated in March 1992, SCBAM is the asset management arm of SCB. With AUM of THB963bn (USD29.7bn) at end-May 2014, the company is the second-largest asset management company in Thailand. SCBAM invests mainly in the Thai market and covers all asset classes with approximately 80% of AUM in fixed income and money market products.
The rating is sensitive to material adverse changes to any of the key rating drivers, particularly weakened financial conditions, heightened staff turnover or deterioration of processes and policies. A material deviation from Fitch guidelines for any key rating driver could result in a rating downgrade.