(Repeat for additional subscribers)
May 22 (The following statement was released by the rating agency)
Fitch Ratings has upgraded Small and Medium Enterprise Development Bank of Thailand's
(SME Bank) National Long-Term Rating to 'AAA(tha)' from 'AA+(tha)'.
At the same time, Fitch has affirmed Islamic Bank of Thailand's (IBANK)
Long-Term IDR and Support Rating Floor at 'BBB-' respectively. Its National
Long-Term Rating has also been affirmed at 'AA(tha)'. The Outlook is Stable. A
full list of rating actions is provided at the end of this commentary.
The upgrade of SME Bank's National Long-Term Rating reflects Fitch's
reassessment of its importance to the government in policy functions. The
Ministry of Finance's (MOF) recent close monitoring of the bank's liquidity and
provision of liquidity underline a high probability of ongoing state support.
IBANK's ratings are affirmed to reflect Fitch's view of a high probability of
government's support for IBANK, albeit less than that to other state banks rated
by Fitch, mainly due to the government's lower direct ownership and less
explicit government support.
Key Rating Drivers - IDRs, Support Rating, Support Rating Floor and National
SME Bank's National Ratings are driven by its high level of effective government
ownership, legal status as specialised financial institution (SFI), specific
policy role, and strategic importance to the government. The MOF shall
compensate the bank for losses incurred resulting from some of its public
mandates to support weak credit SMEs. Fitch believes the propensity for the
government to support SME Bank is no different to other policy institutions
whose ratings are equalised with the sovereign.
IBANK's ratings are driven by Fitch's view of a high probability of government's
support for the bank. IBANK, which the government effectively controls, also has
a unique public policy role in providing Islamic financial services to Thais and
domestic businesses and to support government policies, particularly those
related to Muslim communities in southern provinces. However, its ratings are
below SME Bank's and the other two Fitch-rated SFIs' (Government Housing Bank
(AAA(tha)/Stable) and Export-Import Bank of Thailand (BBB+/AAA(tha)/Stable).
This reflects its lower direct government ownership (limit at 49%), less
explicit government commitment for support stated in its establishment act, its
weaker policy role and lower strategic importance to the government compared
with other SFIs. There is also uncertainty over the government ownership of
IBANK in the future.
The Stable Outlooks of SME Bank and IBANK reflect Fitch's expectations that the
government will continue to support the banks in case of need.
Both SME Bank and IBANK receive capital support from the government, albeit with
delay to the point that the banks are having to operate below regulatory minimum
capital ratios, and with regulatory forbearance. Nonetheless, liquidity support
from the government to these two policy banks to help meet outflows has thus far
The MOF has been providing the banks with liquidity on a timely basis in the
form of deposits and liquidity facilities, respectively, from various government
departments and strong SFIs. Both banks expect large capital injections from the
state in late 2013/early 2014 once they have successfully implemented their
rehabilitation plans. SME Bank has already received a small capital injection in
March 2013, while IBANK will also receive a modest capital increase in June
As weak asset quality has been a major challenge for both SME Bank and IBANK,
the banks are implementing business rehabilitation plans to lower non-performing
loans and non-performing financing and to improve their origination and
Rating Sensitivities - IDRs, Support Rating, Support Rating Floor, and National
For SME Bank, any perceived in weakening in the sovereign's propensity to
support due to a legal amendment or a change in legal and ownership status or in
policy role could result in negative rating action. However, this is a remote
prospect as long as SMEs remain an important part of the Thai economy and the
bank retains its role in supporting weak credit quality SMEs, which are not
served by commercial banks.
For IBANK, any movement in Thailand's ratings could affect IBANK's ratings.
Increasing probability of government support, indicated by increasing direct
ownership by government or explicit support statement from the government, could
lead to a positive rating action on the banks' ratings. However, this is
unlikely as it would require legislative changes and given the government's
initial intention to limit its direct ownership in IBANK.
The ratings actions are as follows:
- National Long-Term Rating upgraded to 'AAA(tha)' from 'AA+(tha)'; Stable
- National Short-term Rating affirmed at 'F1+(tha)'
- Long-Term IDR affirmed at 'BBB-'; Stable Outlook
- Short-Term IDR affirmed at 'F3'
- 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)'