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RPT-Fitch Affirms Thailand's 4 Largest Commercial Banks, Subsidiaries
May 28, 2014 / 7:31 AM / 3 years ago

RPT-Fitch Affirms Thailand's 4 Largest Commercial Banks, Subsidiaries

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May 28 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the ratings of Thailand’s four largest commercial banks and their three subsidiaries. The Long-Term Issuer Default Ratings (IDRs) on Bangkok Bank Public Company Limited (BBL), Kasikornbank Public Company Limited (KBANK) and Siam Commercial Bank Public Company Limited (SCB) have been affirmed at ‘BBB+’ and their National Long-Term Ratings at ‘AA(tha)'. Krung Thai Bank Public Company Limited’s (KTB) Long-Term IDR has been affirmed at ‘BBB’ and its National Long-Term Rating at ‘AA+(tha)'. The Outlooks are Stable.

Fitch has also affirmed the National Long-Term Ratings on the banks’ three subsidiaries, Kasikorn Securities Public Company Limited (KS), SCB Securities Company Limited (SCBS) and KTB Leasing Company Limited (KTBL) at ‘AA-(tha)'. A full list of rating actions is included at the end of this commentary.

KEY RATING DRIVERS - IDRs, VRs, National Ratings and Senior Debt

The IDRs and National Ratings of BBL, KBANK and SCB are driven by their Viability Ratings (VRs), while the IDR of KTB is driven by its Support Rating Floor.

The National Ratings of KS, SCBS and KTBL are driven by their strategic importance to their groups, and as a result, KS is notched once, SCBS once and KTBL twice from their respective their parent banks’ ratings.

The senior debt ratings of BBL, KBANK, SCB and KTB are at the same level as the IDRs (for international ratings) or National Ratings, as the debt represent unsecured and unsubordinated obligations of the banks.

The banks’ VRs are driven by their strong domestic franchises, sound capital levels, and acceptable loan loss reserves.

Fitch expects the operating environment to be more challenging in the future, which may impact the banks’ performance. The Thai economy faces significant downside risks, with some signs already seen in 1Q14 of deteriorating asset quality in the banking system. However, we believe that the buffers of these four banks remain acceptable and sufficient for the banks to cope with a normal cyclical economic downturn.

Fitch expects BBL’s credit profile to remain resilient against potential risks through its maintenance of strong capital and reserve buffers, although its concentration in corporate loans is relatively high compared with other major local banks. BBL continues to maintain a high level of high-quality capital, with Core Tier 1 ratio at 14.3% at end-2013. At the same time, BBL also has the strongest level of loan loss reserve coverage among Thai banks at 214% at end-2013.

Fitch expects KBANK’s well-diversified portfolio and moderate risk appetite, reflected by its slower loan growth (compared with local peers) over the past few years, to provide some buffer against future asset quality risks.

SCB’s ratings reflect its sound franchise, particularly in retail banking, and good performance. It has grown relatively quickly in recent years, but at the same time it has maintained acceptable levels of capital and improved its asset quality buffers.

KTB’s VR is two notches lower than the other three banks, reflecting its relatively weaker operating and financial performance and the quasi-policy responsibility it bears (although KTB has become more commercial in nature).

While many of KTB’s metrics have improved over the past several years, key financial ratios such as asset quality and leverage are still more comparable to ‘bbb-’ rated international peers.

RATING SENSITIVITIES - IDRs, VRs, National Ratings and Senior Debt

Protracted economic weakness from a very severe downturn could have a larger-than-expected impact on the banks’ asset quality and performance. The recent rise in private-sector leverage (particularly in the household sector) may lead to unanticipated adverse impacts on businesses and consumers in the event of a sharp economic slowdown. If Fitch deems that this would have a material negative impact on the banks’ capital buffers, it could take negative rating actions on the VRs of the four banks, and subsequently on the IDRs and National Ratings of BBL, KBANK and SCB. A further deepening and extension of the economic downturn that is related to the current political uncertainties could lead to a bigger impact on bank asset quality and absorption buffers.

A downgrade of Thailand’s sovereign rating could lead to a similar impact on the VRs of BBL, KBANK and SCB, as these are currently at the same level as the sovereign.

KEY RATING DRIVERS - Support Rating and Support Rating Floor

The Support Ratings and Support Rating Floors of the four banks reflect their clear systemic importance to the Thai banking system. The four banks together account for more than 60% of total commercial bank deposits and loans. KTB’s Support Rating Floor at ‘BBB’ is one notch higher than the other three banks. This reflects KTB’s strategic importance to the government - it is the only state-owned commercial bank, with close operational and branding links with the Finance Ministry.

RATING SENSITIVITIES - Support Rating and Support Rating Floor

A reduced propensity of the government to support systemically important banks could result in a downgrade in the Support Ratings and Support Rating Floors of the banks, but we view this to be unlikely in the medium term. A change in the sovereign ratings could also lead to a change in the Support Ratings and Support Rating Floors.

KEY RATING DRIVERS - Subordinated debt

BBL’s US dollar subordinated debt is rated one notch below its IDR. The four banks’ Thai baht subordinated debts are rated one notch below their National Long-Term Ratings. This is to reflect their subordination in the capital structure and is in line with Fitch’s approach to rating such subordinated debt instruments of financial institutions. These subordinated debts are legacy instruments, which are not Basel III-compliant.

RATING SENSITIVITIES - Subordinated debt

The banks’ subordinated debt ratings would be affected by changes to the banks’ IDR/ National Long-Term Ratings.

KEY RATING DRIVERS - Hybrid Tier 1

KTB’s international hybrid Tier 1 rating of ‘B’ is rated five notches below the VR, reflecting their going-concern risks that include a non-cumulative coupon deferral feature that could be triggered upon the bank posting a loss. The national hybrid Tier 1 rating also reflects this implied notching approach from the VR.

RATING SENSITIVITIES - Hybrid Tier 1

Any changes in KTB’s VR could impact the ratings on KTB’s hybrid Tier 1 securities.

The list of rating actions is as follows:

BBL

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

Short-Term Foreign Currency IDR affirmed at ‘F2’

Viability Rating affirmed at ‘bbb+’

Support Rating affirmed at ‘2’

Support Rating Floor affirmed at ‘BBB-’

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

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

Senior unsecured USD3bn GMTN programme affirmed at ‘BBB+’

Long-term foreign currency senior unsecured notes affirmed at ‘BBB+’

Long-term foreign currency subordinated debt affirmed at ‘BBB’

National long-term subordinated debt affirmed at ‘AA-(tha)’

KBANK

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

Short-Term Foreign Currency IDR affirmed at ‘F2’

Viability Rating affirmed at ‘bbb+’

Support Rating affirmed at ‘2’

Support Rating Floor affirmed at ‘BBB-’

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

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

Senior unsecured USD2.5bn EMTN programme affirmed at ‘BBB+’

Long-term foreign currency senior unsecured debt affirmed at ‘BBB+’

National short-term senior unsecured debt rating affirmed at ‘F1+(tha)’

National long-term subordinated debt rating affirmed at ‘AA-(tha)’

SCB

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

Short-Term Foreign Currency IDR affirmed at ‘F2’

Viability Rating affirmed at ‘bbb+’

Support Rating affirmed at ‘2’

Support Rating Floor affirmed at ‘BBB-’

National long-term rating affirmed at ‘AA(tha)'; Outlook Stable

National short-Term rating affirmed at ‘F1+(tha)’

Senior unsecured USD3.5bn MTN programme affirmed at ‘BBB+’

Long-term foreign currency senior unsecured debt affirmed at ‘BBB+’

National rating on short-term senior unsecured debt programme affirmed at ‘F1+(tha)’

National rating on long-term subordinated debt affirmed at ‘AA-(tha)’

KTB

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

Short-Term Foreign-Currency IDR affirmed at ‘F3’

Viability Rating affirmed at ‘bbb-’

Support Rating affirmed at ‘2’

Support Rating Floor affirmed at ‘BBB’

National Long-Term Rating affirmed at ‘AA+(tha)'; Stable Outlook

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

Senior unsecured USD 2.5bn EMTN programme affirmed at ‘BBB’

Senior unsecured notes affirmed at ‘BBB’

International rating for hybrid Tier 1 securities affirmed at ‘B’

National rating on THB30bn short-term debenture programme affirmed at ‘F1+(tha)’

National subordinated debt rating affirmed at ‘AA(tha)’

National rating hybrid Tier 1 securities affirmed at ‘BBB(tha)’

KS

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

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

SCBS

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

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

KTBL

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

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

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