Fitch Downgrades Thailand’s TMB’s Hybrid Rating; Affirms Other Ratings

Stocks and Financial Services Press Releases Friday September 25, 2009 15:26
Bangkok--25 Sep--Fitch Ratings

Fitch Ratings has today downgraded TMB Bank Public Company Limited’s (TMB) foreign currency hybrid Tier 1 securities rating to ‘B’ from ‘B+’. At the same time, the agency has affirmed TMB’s Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’ with a Negative Outlook, Short-term foreign currency IDR at ‘F3’, Individual Rating at ‘C/D’, Support Rating at ‘3’, National Long-term Rating at ‘A+(tha)’ with a Stable Outlook, National Short-term Rating at ‘F1(tha)’, foreign currency subordinated debt at ‘BB+’ and National subordinated debt rating at ‘A(tha)’. The support rating floor was revised to ‘BB+’ from ‘BB’ due to a reassessment of its systemic importance and partial state ownership.

The downgrade of TMB’s foreign currency hybrid Tier 1 rating reflects the heightened risk of the bank reporting a loss in H209, based on its weak H109 performance, and possible additional provisioning and charges in H209. As TMB still has large negative retained earnings, the Bank of Thailand (BOT) may not approve a coupon payment if TMB reports a loss. The risk of coupon non-payment should decline in 2010 as TMB plans to restructure its capital and offset this against negative retained earnings.

TMB’s IDR and other ratings reflect significant improvement in the bank’s capital after the recapitalisation by ING Bank NV (ING; rated ‘A+’/‘F1+’/‘Stable Outlook’) in December 2007. While its 2009 performance has been affected by ongoing operational restructuring and the weak economic environment, the outlook should improve in 2010 on the back of an economic recovery and the bank’s refocus on business growth. Nonetheless, downside risks persist due to the weak economy and asset quality overhang which is reflected in the Negative Outlook.

Due to the integration with ING and more stringent provisioning policy, TMB reported a negligible net profit of THB0.5bn in 2008. For H109, TMB reported a small net profit of THB0.8bn due to falling revenues as its loan book continued to contract sharply (down 13.7% ytd) and still high provisioning costs. NIM also remained weak at 2.4%, although this should improve in 2010 with a further fall in impaired loans and a pick-up in loan growth.

TMB’s non-performing loans (NPL) declined to THB70.6bn at end-2008 or 16.5% of loans (2007: THB78bn or 16.6% of loans) due mainly to NPL sales and write-offs. The bank’s NPLs dropped further to THB59.9bn at end-June 2009 due to THB14.9bn NPL sales in H109, although the NPL ratio remained flat at about 16% due to its shrinking loan book. However, there was a large jump in watch-list loans due to tougher classification. TMB’s loan loss reserves (LLR) and LLR coverage ratio stood at THB35.9bn and 59.9% at end-June 2009, respectively. The LLR coverage is still moderately lower compared to peers, implying further provisioning risks, although earnings should now mostly offset this risk. TMB also faces additional charges on foreclosed properties.

Liquidity and capital measures remained generally stable in the past year, despite market volatility. Tier 1 and total capital ratios have strengthened significantly since the capital raising in December 2007 and now stand at 11% and 15% of risk-weighted assets, respectively, at end-June 2009. This should provide a reasonable buffer against the weak operating environment and enable TMB to absorb any additional provisioning.

TMB is currently the sixth-largest commercial bank in Thailand with assets of THB568.7bn (USD16.7bn). ING is the largest shareholder at 30%, followed by the Ministry of Finance at 26% and Singapore’s DBS Bank at 7%. Fitch believes the probability of external support from the Thai government, if required, is moderate, though this support would not extend to more junior debt such as hybrid securities.

Contacts: Patchara Sarayudh, Bangkok, +662 655 4761; Vincent Milton, Bangkok, +662 655 4759.

Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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