Fitch Upgrades ICBC (Thai) to 'AAA(tha)'; Outlook Stable

Stocks and Financial Services Press Releases Thursday June 7, 2012 16:01
Bangkok--7 Jun--Fitch Ratings

Fitch Ratings (Thailand) has upgraded Industrial and Commercial Bank of China (Thai) Public Company Limited's (ICBCT) National Long-Term Rating to 'AAA(tha)' from 'AA+(tha)'. The Outlook is Stable. At the same time, the agency has affirmed its National Short-Term Rating at 'F1+(tha)'.

The upgrade reflects a reassessment of support for ICBCT from its parent Industrial and Commercial Bank of China (ICBC; 'A'/Stable) that is more consistent with the approach taken in rating other foreign-owned subsidiary banks in Thailand. ICBCT's ratings reflect near full ownership by ICBC and Fitch's view of a high probability of timely support from its parent, in case of need. Any reduction in ICBC's shareholding of or its propensity of support for ICBCT may be negative for ICBCT's National Ratings, as are adverse changes to ICBC's International ratings.

ICBCT has leveraged off the parent's strong franchise name and increased operational integration with ICBC. ICBCT has now aligned its strategy with the parent bank to focus on facilitating bilateral trade between Thailand and China. ICBCT also has strong liquidity support and capital commitment from the parent, which Fitch considers as key support drivers for the ratings.

On a standalone basis, ICBCT's profitability continued to improve in 2011 with net profit up 25% yoy to THB695m, due to a high loan growth, mainly in auto hire purchase. The bank expects strong loan growth to continue in the next two to three years, leveraging off its parent's relationship with Chinese-related businesses. Its capital remains strong with a Tier 1 ratio at 17.1% at end-2011, although the ratio could decline steadily over the next two to three years due to business growth ambitions of the parent. Fitch views, however, that ICBCT's capital and liquidity positions should be adequate to support growth.

In the medium term, higher funding cost due to intense domestic competition could put pressure on its margins. Impact from the major flooding in Thailand in Q411 has been negligible with 5% or less of its loan portfolio affected. The bank disposed of and restructured a sizeable amount of non-performing loans (NPLs) in 2011, resulting in a significant decline in NPLs to THB1.9bn (2.8% of total loans) at end-2011 from THB3bn (5.4%) at end-2010.

Founded in 1969 as a finance company, ICBCT (formerly ACL Bank Public Company Limited) is amongst the country's smallest full-licensed banks, with a market share of assets and loans of less than 1%. ICBCT is 97.7%-owned by ICBC, and this ownership is intended to be a long-term holding. Fitch does not expect the Bank of Thailand's restrictions on capital increase (for foreign shareholders with above 49% ownership), which will kick in for ICBC in 2020 once the 10-year grace period expires, to prevent a recapitalisation of ICBCT if needed.


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