Fitch Affirms Thailands Mid-Sized Banks

Stocks and Financial Services Press Releases Monday November 7, 2016 09:48
Bangkok--7 Nov--Fitch Ratings

Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Bank of Ayudhya Public Company Limited (BAY) and TMB Bank Public Company Limited (TMB). Fitch has also affirmed the National Long-Term Ratings of BAY, TMB, Thanachart Bank Public Company Limited (TBANK) and Thanachart Capital Public Company Limited (TCAP). A full list of rating action is at the end of this commentary.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT

BAY's IDRs, National Ratings and senior debt ratings are driven by institutional support. Fitch sees BAY as a strategically important subsidiary of the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU; A/Negative), which owns 76.9% of BAY. The Negative Outlook on BAY's Long-Term IDR reflects the Negative Outlook on its parent.

TMB's IDRs, National Ratings and senior debt ratings are driven by its standalone strength, as reflected in its Viability Rating.

TBANK's National Ratings reflect its moderate domestic franchise as Thailand's sixth-largest commercial bank and its leading market position in auto hire purchase. TBANK's overall credit profile has strengthened further at the current rating, particularly on asset quality and capital. These improvements have narrowed the gap between TBANK and larger domestic peers. The Stable Outlook on its National Long-Term Rating reflects Fitch's expectation that TBANK will maintain its improved financial profile and strengthened buffers, in term of reserve coverage and capital, allowing the bank to cope with cyclical economic slowdowns without affecting its ratings.

TCAP's National Ratings are notched down from its core operating subsidiary, TBANK, reflecting the structural subordination of the holding company and the presence of large minority interests. The Stable Outlook on its National Long-Term Rating is in line with that of TBANK.

VIABILITY RATINGS

BAY's Viability Rating reflects its satisfactory credit profile, reasonable franchise as Thailand's fifth-largest commercial bank, proven earnings record and acceptable asset quality buffers. BTMU also provides important ordinary support to BAY, for example, in funding, marketing, management and operational controls.

TMB's Viability Rating reflects its stable asset quality and profitability and its sound capital and liquidity positions. TMB is Thailand's seventh-largest commercial bank, with a market share of around 6% in loans and 5% in deposits at end-June 2016. The bank's improving loan loss provisions should allow it to negotiate external challenges over the near-term, although Fitch expects the weak operating environment to pressure its asset quality.

SUPPORT RATING AND SUPPORT RATING FLOOR
BAY's Support Rating is based on Fitch's view of an extremely high probability of extraordinary support from its parent, BTMU.
TMB's Support Rating and Support Rating Floor are based on sovereign support. Fitch believes TMB to be systemically important, though to a lesser degree than the country's four largest commercial banks.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The Tier 2 subordinated notes, which include legacy and Basel III notes, of BAY and TMB are rated one notch below the banks' National Long-Term Ratings. This reflects loss-severity risks arising from their subordinated status and a lack of mandatory full write-down features. There is no notching for non-performance risk as the notes' key terms exclude going-concern loss absorption features.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT

BAY's IDRs, National Ratings and senior debt ratings would be affected by changes in Fitch's assumptions about the ability or propensity of BTMU to support BAY. No upside is possible to the IDR, which is at Thailand's (BBB+/Stable) Country Ceiling, or the National Ratings, which are already at the highest-end on the Thai national scale. There could be downside to the ratings if BTMU is downgraded or BAY's strategic importance to BTMU is reduced, leading to a lower propensity to support.

TMB's IDRs and senior debt ratings are sensitive to changes in its Viability Rating. Its National Long-Term Rating is also sensitive to changes in its Viability Rating, but may be upgraded with a constant Viability Rating if the bank's key financial metrics significantly improve relative to Thai peers.

TBANK's National Rating may be upgraded if it maintains its improving performance, particularly on asset quality and capitalisation, narrowing the gap with its larger peers. However, a large and sustained reversal of TBANK's improving financial profile could lead to a downgrade.

Any change in TBANK's National Ratings would be likely to have a corresponding effect on TCAP.
VIABILITY RATINGS

BAY's Viability Rating could face downside pressure if there is a severe weakening in asset quality and core capitalisation or a large decline in liquidity. There could be upside to its Viability Rating if the bank can leverage its integration with BTMU into sustained improvements in its franchise and capitalisation.

TMB's Viability Rating could face downward pressure if the bank's asset quality, profitability, liquidity or capitalisation deteriorate sharply. Conversely, sustained improvements in these factors may lead to an upgrade of its Viability Rating.

SUPPORT RATING AND SUPPORT RATING FLOOR

BAY's Support Rating could be affected by any decline in BTMU's propensity to support BAY. This could be indicated by a large reduction in shareholding or a reversal of recent integration measures. However, Fitch believes this is unlikely to occur in the short term. BAY's Support Rating could also be affected by any downward shift in BTMU's Long-Term IDR.

A significant change to TMB's market shares in loans or deposits could affect the bank's Support Rating and Support Rating Floor, although this is unlikely in the short term.
SUBORDINATED DEBT
BAY and TMB's subordinated debt ratings are broadly sensitive to the same factors affecting their National Long-Term Ratings.
The rating actions are as follows:
BAY
Long-Term IDR affirmed at 'A-'; Outlook Negative
Short-Term IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(tha)'
National long-term senior unsecured debt affirmed at 'AAA(tha)'
Legacy Basel II subordinated debt affirmed at 'AA+(tha)'
Basel III Tier 2 subordinated debt affirmed at 'AA+(tha)'
TMB
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)'
USD3.0bn senior unsecured medium-term note programme affirmed at 'BBB-'
Long-term foreign-currency senior unsecured debt affirmed at 'BBB-'
Basel III Tier 2 subordinated debt rating affirmed at 'A(tha)'
Legacy Basel II subordinated debt rating affirmed at 'A(tha)'
TBANK
National Long-Term Rating affirmed at 'A+(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(tha)'
TCAP
National Long-Term Rating affirmed at 'A(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1(tha)'

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