Fitch Affirms TMB Bank Public Company at 'BBB-'; Outlook Stable

Tue Aug 19, 2014 5:21am EDT

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(The following statement was released by the rating agency) BANGKOK/SINGAPORE, August 19 (Fitch) Fitch Ratings has affirmed TMB Bank Public Company Limited's (TMB) Long-Term Issuer Default Rating (IDR) at 'BBB-' and Long-Term National Rating at 'A+(tha)'. The Outlook is Stable. A full list of rating actions is included at the end of this commentary. KEY RATING DRIVERS - VR, IDRs, National Ratings TMB's IDRs and National Ratings are based on its standalone financial strength, which is reflected in its Viability Rating (VR) of 'bbb-'. The ratings reflect its sound franchise as a mid-sized bank in Thailand (with the seventh-largest share of the loan and deposit market) in a challenging operating environment. The ratings also take into account the improvement in recent years in TMB's overall financial performance, particularly in asset quality. The bank's NPL ratio declined to 4.5% while reserve coverage increased to 140% at end-2013 from 9.9% and 57% respectively at end-2010. The bank sold THB3.3bn of NPLs in 2Q14 and the NPL ratio has dropped further to 4.1% at end-June 2014. Nevertheless, the uncertain and fragile operating environment remains a challenge - around 40% of TMB's loan portfolio is extended to small and medium enterprises (SMEs), which may be more vulnerable in an economic downturn. In 2013, TMB had return on assets (ROA) of 0.8% and return on equity (ROE) of 9.7%, which were lower than the local peer average (ROA: 1.3%, ROE: 13.6%). Fitch expects TMB's loan growth of 2% in 1H14 to pick up in 2H14, if the operating environment remains favourable. We expect TMB's profitability to steadily improve in the next two to three years, barring any unexpected negative shocks, as it focuses on SMEs rather than corporates. Fitch believes TMB's capitalisation is adequate and comparable to peers' - its core Tier 1 capital was 9.9% and Fitch Core Capital was 11.4% at end-2013. This would provide some buffer to potential credit loss. TMB's funding and liquidity profile are also sound and compare favourably with its peers'. The bank has also increased the proportion of low-cost deposits in its overall deposit base. RATING SENSITIVITIES - VR, IDRs, National Ratings A material reversal of recent gains in key financial measures, such as asset quality and earnings, and a material increase in risk appetite, if not offset by strengthened capital and profitability buffers, could lead to a downgrade. An upgrade is unlikely in the near term because further improvement in TMB's overall credit profile is likely to be gradual and this has been factored into the ratings. KEY RATING DRIVERS - Support Rating and Support Rating Floor The Support Rating and Support Rating Floor reflect Fitch's view that there is a moderate probability of support from the Thai state (BBB+/Stable), if necessary. TMB is systemically important within the domestic financial sector. It is the seventh-largest commercial bank with a 4.5% share of loans and 4.8% share of deposits in the market. RATING SENSITIVITIES - Support Rating and Support Rating Floor Any significant changes to the bank's systemic importance - typically indicated by market share in assets, loans and deposits - could affect the propensity of the government to support the bank, and hence its Support Rating and Support Rating Floor. A multiple-notch change to Thailand's IDRs could also affect the Support Rating and Support Rating Floor. However, Fitch believes these are unlikely to occur in the near term. The full list of rating actions follows: TMB Long-Term IDR affirmed at 'BBB-'; Outlook Stable Short-Term IDR affirmed at 'F3' USD3.0bn senior unsecured medium-term note programme affirmed at 'BBB-' Viability Rating affirmed at 'bbb-' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB+' National Long-Term Rating affirmed at 'A+(tha)'; Outlook Stable National Short-Term Rating affirmed at 'F1(tha)'; National subordinated debt rating affirmed at 'A(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 Trin Siriwutiset (National Ratings) Associate Director +662 108 0154 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road, Lumpini Patumwan, Bangkok 10330 Secondary Analysts Trin Siriwutiset (International Ratings) Associate Director +662 108 0154 Patchara Sarayudh (National Ratings) Director +662 108 0152 Committee Chairperson Jonathan Cornish Managing Director +852 2263 9901 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 31 January 2014, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "National Scale Ratings Criteria", dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities 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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