Fitch Upgrades TMB#s National Short-Term Affirms Other Thai Mid-Sized Banks

Stocks and Financial Services Press Releases Wednesday October 25, 2017 11:12
Bangkok--25 Oct--Fitch Ratings

Fitch Ratings has upgraded TMB Bank Public Company Limited's (TMB) National Short-Term Rating to 'F1+(tha)' from 'F1(tha)', and affirmed the bank's Long-Term Issuer Default Rating (IDR). The agency has also affirmed the Long-Term IDR of Bank of Ayudhya Public Company Limited (BAY), as well as the National Long-Term Ratings of Thanachart Bank Public Company Limited (TBANK) and Thanachart Capital Public Company Limited (TCAP). All Outlooks are on Stable.

A full list of rating actions 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/Stable/a), which owns 76.9% of BAY. BAY plays a key role in implementing the group's strategies in south-east Asia, and represents one of BTMU's largest overseas investments.

TMB's IDRs, National Ratings and senior debt ratings reflect its standalone strength, as indicated by its Viability Rating (VR). The upgrade in TMB's National Short-Term Rating to 'F1+(tha)' is driven by the bank's liquidity and funding profile, which the agency now views as being commensurate with similarly rated domestic peers.

TBANK's National Ratings reflect its moderate domestic franchise as the sixth-largest commercial bank in Thailand, and its leading market position in the auto hire-purchase segment. The ratings are also based on TBANK's overall financial profile, which continues to improve, particularly in asset quality and capital. TBANK continues to receive ordinary support from its 49% shareholder, the Bank of Nova Scotia (AA-/Stable), including management and operational support as well as an uncommitted credit facility.

TCAP's Stable Outlook mirrors that of TBANK. TCAP's Long-Term National Rating is notched down from that of its core operating subsidiary, TBANK. This approach reflects the structural subordination of the holding company and the presence of large minority interests.

VIABILITY RATINGS

BAY's VR reflects the diversified business model of Thailand's fifth-largest commercial bank, as well as the bank's proven performance track record and improving asset-quality metrics. BTMU acquired a majority stake in BAY in 2013, and since then has integrated BAY into the group's operations; it provides important ordinary support, for example, in foreign-currency funding, marketing, and management.

TMB's VR reflects its promising earnings prospects and a sound liquidity position that stems from its robust transactional banking franchise. TMB is Thailand's seventh-largest commercial bank, with market shares of around 5% in loans and deposits at end-June 2017. The bank's loan loss coverage of around 140% limits provisioning risks, particularly from the SME segment, where asset-quality uncertainties remain.

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 is systemically important, though to a lesser degree than the country's large 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 are sensitive to 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 Country Ceiling, or the National Ratings, which are already at the highest level on the Thai national scale. There may be downside to the ratings if BTMU is downgraded or BAY's strategic importance to BTMU is reduced, resulting in a reduction in BTMU's propensity to extend support.

TMB's IDRs and senior debt ratings are sensitive to changes in its VR. The bank's National Long-Term Rating is also sensitive to changes in its VR, but may be upgraded if the bank's key financial metrics significantly improve relative to Thai peers while its VR remains the same.

Fitch may upgrade TBANK's National Ratings if the bank can further strengthen its key financial measures in a way that can be sustained through industry cycles, particularly in asset quality, capital and profitability. Conversely, the agency may downgrade the rating if the recent improvements in the bank's financial profile are materially reversed. The agency could also upgrade the ratings if Bank of Nova Scotia, currently a minority shareholder, were to become a majority shareholder in TBANK. However, Fitch deems this improbable over the medium term.

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

BAY's VR may see upside if the bank can further leverage its integration with BTMU into sustained improvements in its corporate profile, while also adding to its capital buffers without a shift in risk appetite. Conversely, there may be downside pressure if there is a severe and sustained weakening in asset quality and earnings, or a large decline in liquidity buffers.

TMB's VR may face downward pressure if the bank's asset quality, profitability, liquidity or capitalisation deteriorates sharply. Conversely, the agency may upgrade its VR if the bank sustains improvements in a combination of these factors.

SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch may change BAY's Support Rating of '1' if BTMU's propensity to support BAY is reduced. This can happen if the group significantly lowers its shareholding in BAY or reverses recent integration measures. However, Fitch deems this unlikely in the short term. Changes in BTMU's Long-Term IDR may also affect BAY's Support Rating.

The agency may change TMB's Support Rating of '3' and Support Rating Floor of 'BB+' if Fitch perceives there to be a material change in the bank's systemic importance. This may happen, for example, if the bank's market share in either loans or deposits changes significantly, although this is unlikely to happen in the near term.

SUBORDINATED DEBT
BAY's 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 Stable
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 upgraded to 'F1+(tha)' from 'F1(tha)'
USD3.0 billion senior unsecured Euro medium-term note (EMTN) 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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