Fitch Rates Siam Commercial Bank's Debenture Programme 'F1+(tha)'

Stocks and Financial Services Press Releases Monday July 8, 2013 14:16
Bangkok--8 Jul--Fitch Ratings
Fitch Ratings has assigned Siam Commercial Bank Public Company Limited's (SCB) unsubordinated unsecured short-term debenture programme of up to THB50bn a National Short-Term rating of 'F1+(tha)'.

This programme replaces the bank's existing THB50bn debenture programme, which expires on 15 July 2013. The debentures will have a maturity of no more than 270 days and will be issued in several tranches within a year. The proceeds will be used for the bank's general corporate purposes.

Key Rating Drivers

SCB's unsubordinated unsecured debenture programme is rated at the same level as the bank's National Short-Term rating of 'F1+(tha)' as the notes under the programme will constitute direct unsecured and unconditional obligations of the bank. The Short-Term rating is consistent with SCB's National Long-Term rating of 'AA(tha)'.

SCB's ratings are driven by its solid domestic franchise, improved asset quality, strong funding and liquidity, sound capitalisation as well as by strong profitability. Fitch considers SCB to have the highest risk appetite among Thailand's three largest private commercial banks. This is evident in loan growth well above its peers and the industry and its large exposures to certain weak corporate credits. If the bank continues to actively participate in financing large M&As this may give rise to loan concentration, pressure on capital levels and higher volatility in asset quality during a economic downturn. Capital, though declining due to high loan growth, remains adequate for now.

However, Fitch expects loan growth to moderate and pressure on capital to ease. Asset quality and loan loss reserves have also improved and are in line with large peers. Over the past decade, SCB's profitability has consistently been above major peers, and should act as a reasonable buffer against moderate asset quality deterioration.

SCB is Thailand's oldest and second-largest commercial bank. It has a leading market position in retail banking. The Crown Property Bureau is the largest private shareholder with a 24% stake. The Ministry of Finance indirectly holds 23% of SCB through the Vayupak Fund.

Rating Sensitivities
Any change in SCB's National Ratings will affect the rating of the senior unsecured debentures.

Positive rating action may be considered in the event of a sustained improvement in the domestic operating environment and further strengthening of the bank's overall financial profile, barring an increase in risk tolerance or in exposure to the sovereign.

On the other hand, a downgrade may result from significant deterioration in asset quality that leads to an erosion of profitability or capital. This could stem from an increasing risk appetite through rising loan concentrations or excessive loan growth in the absence of further strengthening buffers through higher profitability and capital. Weakening buffers such as a further decline in capital, or lower loan loss reserves coverage could be negative to its ratings.

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