March 8 () - (The following statement was released by the rating agency) BANGKOK/SINGAPORE, March 08 (Fitch) Fitch Ratings has affirmed Thailand-based Bank of Ayudhya Public Company Limited's (BAY) Long-Term Issuer Default Rating (IDR) at 'BBB' and its National Long-Term Rating at 'AA-(tha)'. The Outlook is Stable. A full list of rating actions is provided at the end of this release. Rating Action Rationale BAY's IDRs and National Ratings are based on its standalone financial strength, which is manifested in its Viability Rating. The bank's performance and asset quality have further strengthened while its capitalisation has remained adequate. The ratings also take into account BAY's greater reliance on wholesale funding and a higher loans/deposits ratio compared with domestic peers and similarly rated international peers. The Stable Outlook reflects Fitch's expectation that BAY would maintain its overall credit profile. The Support Rating and Support Rating Floor underline Fitch's view of a moderate probability of government support, if needed, given BAY's sizable market share of 7%-8% in assets, loans and deposits. BAY's local currency senior unsecured debt are rated the same level with its National Rating as they represent unsecured and unsubordinated obligation of the bank. Its local currency subordinated debt are rated one notch below BAY's National Rating to reflect their subordination in the capital structure and are in line with Fitch's approach to rating such subordinated debt instruments of financial institutions. Rating Drivers and Sensitivities - IDRs, Viability Rating, National Ratings, and Senior Debt Ratings An upgrade of BAY's IDRs, Viability, and National Ratings is unlikely in the medium term given the bank's narrower lending and deposits franchise and its high concentration in consumer loans relative to the major domestic peers. BAY's senior unsecured and subordinated debt ratings will be affected by changes to the bank's National Ratings. An improvement in BAY's deposits franchise, as measured by retail deposits funding as a share of total funding, an improvement in its loan/deposits ratio to levels closer to its major domestic peers and a higher level of liquidity buffer, should help strengthen its position at the current rating level. This is provided that strong asset quality and adequate capitalisation are maintained. A substantial weakening in the bank's capital position, or a significant deterioration in asset quality and an increase in liquidity risk due to aggressive asset growth or higher reliance on wholesale funding, could lead to negative rating action. Rating Drivers and Sensitivities - Support Rating and Support Rating Floor Any significant changes to the bank's market share in assets, loans and deposits could affect its systemic important and Support Rating and Support Rating Floor. A multiple-notch change to Thailand's sovereign's IDRs could also affect the Support Rating and Support Rating Floor. However, Fitch believes these scenarios are unlikely to occur in the near term. BAY continued to report strong performance in 2012 with net profit of THB14.7bn and return on asset of 1.5% (end-2011: THB9.3bn and 1%). The bank reported strong loan growth of 15% in 2012, although this was partly driven by the acquisition of HSBC's credit card portfolio. Asset quality strengthened as non-performing loans (NPLs) fell to THB21.3bn or 2.6% of total loans at end-2012 (end-2011: THB29.5bn or 4.1%), while loan loss reserve (LLR) coverage ratio rose to 145.6% (106%), more in line with that of major domestic peers. Fitch expects BAY's overall performance and asset quality to remain strong, supported by a still favourable domestic economic outlook; the agency forecasts GDP growth of 5% for 2013. However, rising consumer debt in Thailand due to the banking industry's aggressive growth since 2010, particularly in personal loans and auto hire purchase, has increased the sector's vulnerability to an economic downturn and further asset quality pressures in the medium-term. BAY's solid LLR coverage and adequate tier 1 ratio should also provide some buffer against the downside risk. The bank's loan-to-deposits ratio (LDR) of 121% at end-2012 was high compared with peers', partly due to its use of long-term wholesale funding to better match its asset profile. However, the LDR should fall as the bank expects a further migration of its short-term debenture holders to deposits in 2013. BAY's consolidated Tier 1 capital ratio of 9.9% at end-June 2012 and is estimated to have eased modestly to about 9.8% at end-2012. For 2013, the Tier 1 capital ratio should remain adequate due to profit accumulation from earnings growth momentum and expected slower loans growth. BAY was established in 1945 and is Thailand's fifth-largest commercial bank by assets and loans. GEICH, a subsidiary of General Electric Captial Corportion Inc., holds a 25.3% stake, while the Ratanarak Group holds another 25%. The bank's key subsidiaries are involved in auto finance, credit cards, consumer finance, securities and fund management. BAY's ratings are as follow: - Long-Term IDR affirmed at 'BBB'; Outlook Stable - Short-Term IDR affirmed at 'F3' - Viability Rating affirmed at 'bbb' - Support Rating affirmed at '3' - Support Rating Floor affirmed at 'BB+' - National Long-Term Rating affirmed at 'AA-(tha)'; Outlook Stable - National Short-Term Rating affirmed at 'F1+(tha)' - National senior unsecured debt affirmed at 'AA-(tha)'/'F1+(tha)' - National subordinated debt affirmed at 'A+(tha)'