Fitch Upgrades Maybank Kim Eng Securities (Thailand) to 'AA(tha)'; Outlook Stable

Stocks and Financial Services Press Releases Friday August 31, 2012 16:55
Bangkok--31 Aug--Fitch Ratings

Fitch Ratings (Thailand) Limited has upgraded Maybank Kim Eng Securities (Thailand) Public Company Limited's (MBKET) National Long-Term Rating to 'AA(tha)' from 'AA-(tha)'. The Outlook is Stable. At the same time, the agency has affirmed MBKET's National Short-Term Rating at 'F1+(tha)'.

The upgrade reflects Fitch's reassessment of support for MBKET from its ultimate parent, Malayan Banking Berhad's (Maybank: 'A-'/Stable), which has an effective interest of 83.7% in MBKET. Since late 2011, there have been further integration and support from Maybank to MBKET, including the re-branding of Thailand-based securities firm from Kim Eng Securities Public Company Limited to its present name. In addition, policies governing MBKET's key functions, including risk management, internal audit and compliance, have been aligned with those of the Maybank group.

Existing financial support from the group includes the provision of guarantee by Maybank Kim Eng Holding Limited (MBKEH - the investment banking holding vehicle of Maybank) to MBKET's credit line with a domestic bank. MBKET can also access MBKEH's medium-term note facilities to finance its funding requirements.

Because MBKET's ratings are based on support from Maybank; any changes in the latter's ratings will therefore likely result in a similar rating action for MBKET. MBKET's National Long-Term Rating is the highest among Thai securities firms and is a function of Maybank's IDR. A material reduction in Maybank's ownership in or a significant change in the propensity of support for MBKET could result in a lower rating. Conversely, a material increase in MBKET's importance to the group, indicated by a significant increase in size, revenues, and profit contribution or a more meaningful operational integration, could result in a higher rating on the national scale.

The company reported weaker performance in H112 with a net profit of THB354m and a return on equity of 16.2% (H111: THB375m and 16.7%), as competition intensified due to the liberalisation of brokerage commission since early 2012. Its net liquid capital ratio (NCR) - a ratio used by the regulator to monitor securities firms' liquidity - declined to 86% at end-H112 from 146% at end-2011, due to an increase in leverage to support its margin lending business. MBKET sets the minimum NCR at 50%, significantly higher than the regulatory requirement of 7%, even as it plans to further increase its leverage to support business growth and enhance its return on equity.

MBKET has established a strong domestic brokerage franchise, with the largest market share (H112: 12.1%) in trading volume for the last 10 consecutive years. MBKET plans to increase revenue contribution from investment banking, private wealth management services and more structured products.

Maybank is Malaysia's largest bank with an extensive presence in south-east Asia. Its total consolidated assets stood at USD154bn at end-H112. Malaysian state-controlled entities control about 70% of Maybank.

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