(The following statement was released by the rating agency)
Nov 15 - Fitch Ratings has affirmed Thailand-based TMB Bank Public Company Limited's (TMB) Long-Term Issuer Default Rating (IDR) at 'BBB-' and National Long-Term Rating at 'A+(tha)'. The Outlook is Stable. A complete list of rating actions is provided at the end of this commentary.
TMB's Long-term IDR is at the same level as its Viability Rating (VR), reflecting the bank's standalone financial strength as the primary rating driver. TMB's VR reflects improved profitability and asset quality and that these improvements are likely to continue, albeit at a gradual pace. The rating also takes into account TMB's sound funding, liquidity and capital profile. The bank has also narrowed its profitability and asset quality gap with rated peers, due to a strengthened mid-tier deposit franchise, more stringent risk management and active non-performing loan (NPL) management.
Rating upside is limited as further improvement to TMB's overall credit profile is not expected to be significant. Reversal of improvement to its credit profile or a higher risk appetite indicated by excessive loan growth could negatively affect the ratings.
TMB's loan growth momentum, plus its efforts to increase yields, control costs and improve asset quality, should continue to support improving performance. In 9M12, TMB reported a strong increase in net profit of 23% yoy as loans expanded almost 10%. Its return on assets also increased, supported by higher loan yields, stable funding costs and higher fee income. Net interest margins widened slightly to 2.6% (end-2011: 2.5%) as the bank shifts away from low-yield corporates to the higher-yield SME and retail segments.
Asset quality has significantly improved over the past five years, driven by more stringent loan underwriting standards and active NPL management. However, TMB's NPL ratio of 6.5% at end-September 2012 remained high compared with its rated peers. This is partly due to legacy NPLs resulting from the 1997 Asian crisis and prior to the involvement of ING Bank N.V. (ING; 'A+'/Stable) in the bank. Fitch expects further improvements to asset quality to be more gradual, given a large portion of its NPLs have already been resolved. Provisioning risks remain partly due to its lower loan loss reserve coverage of 83.2% at end-September 2012 relative to the industry average of over 100%.
TMB has strengthened its deposit franchise through product innovation and successfully increased the proportion of stable retail depositors. This effort should help mitigate funding and liquidity risks. The bank's loans-to-deposits ratio has been among the lowest in the Thai banking industry, although this was partly due to its slower loan growth historically. TMB's Tier 1 ratio of 11.5% and Fitch Core Capital ratio of 12.1% at end-June 2012 were strong by domestic and regional comparison. This should provide an adequate buffer to accommodate increasing risks from a weak global economic environment and from its strategy of loan expansion.
TMB is the seventh-largest commercial bank in Thailand with assets of THB622.2bn at end-September 2012. ING is the largest shareholder with a 30% stake, followed by the Ministry of Finance at 26% and Singapore's DBS Bank (DBS, 'AA-'/Stable) at 2.9%. Fitch considers the probability of external support from the Thai government, if needed, to be moderate, resulting in a Support Rating of '3' and Support Rating Floor of 'BB+'.
The rating actions on TMB are as follows:
- 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 'A+(tha)'; Outlook Stable
- National Short-Term rating affirmed at 'F1(tha)'
- National subordinated debt rating affirmed at 'A(tha)'