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
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
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)'