Fitch Affirms KASIKORNBANK at 'BBB+', Kasikorn Securities at 'AA(tha)'

Wednesday 17 April 2019 11:19
Fitch Ratings has affirmed KASIKORNBANK Public Company Limited's (KBank) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB+' and its National Long-Term Rating at 'AA+(tha)'. The Outlooks are Stable.

At the same time, Fitch has affirmed the National Long-Term Rating on Kasikorn Securities Public Company Limited (KS) at 'AA(tha)' with a Stable Outlook.

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND SENIOR DEBT

The bank's IDRs, National Ratings and senior debt rating are driven by its standalone profile, indicated by its Viability Rating (VR). Peer relativity among other Thai companies with national ratings also drives KBank's National Ratings. The senior debt represents unsecured and unsubordinated obligations of the bank.

VR

KBank's VR takes into consideration its strong domestic franchise as one of the largest banks in Thailand, as well as its leadership in SME lending. The rating also reflects KBank's weakening profitability during the past few years, which may remain lower than that of its global rating peers over the medium term. We think profitability could remain under pressure in 2019 due to expected maintenance of high provisions and weakening non-interest income including lower revenue from its insurance business.

Fitch expects KBank's asset quality to continue stabilising over the next 12 months supported by a stable operating environment. KBank's strengthening buffers, including loan-loss reserves (160.6% at end-2018) and capitalisation (Fitch Core Capital ratio: 16.4%), should help the bank to withstand asset quality downside risks. KBank's solid current account-savings account (CASA) ratio of 78% of total deposits at end-2018 underpins its lower-than-peer funding cost and stable funding profile.

SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's Support Rating and Support Rating Floor are based on its systemic importance to the Thai financial system, which is evident from its deposit market share of about 15%.

SUBORDINATED DEBT

KBank's Basel III Tier 2 subordinated Thai baht notes are rated one notch below its National Long-Term Rating to reflect their lack of mandatory full writedown features and their higher loss-severity risks than senior unsecured instruments given their subordination status. There is no notching for non-performance risks due to the absence of going-concern loss-absorption features.

SUBSIDIARY AND AFFILIATED COMPANY

The National Rating on KS reflects Fitch's belief there is a high probability the company would receive extraordinary support from its parent, KBank, if needed. Fitch views KS as a strategically important subsidiary of KBank due to its crucial role of supporting its parent's universal-banking aspirations. KBank owns 99.91% of KS and they have clear branding links. KS also has close management and operational integration with the parent.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND SENIOR DEBT

KBank's IDRs, National Ratings and senior debt ratings are sensitive to changes in its standalone profile as reflected by its VR. Changes in Fitch's assessment of KBank's credit profile relative to its peers within Thailand's national rating universe could also affect KBank's National Ratings.

VR

An upgrade to KBank's VR in the near term is unlikely. The rating is already at the same level as the Thai sovereign's Long-Term Foreign-Currency IDR (BBB+/Stable), and the bank has a large exposure to government bonds. A downgrade of the sovereign's Long-Term Foreign-Currency IDR could lead to a similar rating action for the bank's VR.

A further deterioration in asset quality on a prolonged basis without sufficient buffers in terms of loan-loss reserves and capitalisation, a material deterioration in its profitability metrics beyond Fitch's expectation or failure to maintain risk-adjusted profitability metrics around the levels of similarly rated domestic peers, could trigger a negative rating action on its VR.

SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch may reassess the Support Rating Floor on KBank if the government's ability to provide support to the bank declines. This may happen if the agency downgrades Thailand's Long-Term Foreign-Currency IDR. KBank's Support Rating Floor could also change if Fitch alters its view on the propensity of the state to provide support to the systemically important bank. However, Fitch does not expect such changes over the medium term.

SUBORDINATED DEBT

KBank's subordinated debt instruments would be affected by changes in the anchor rating, the National Long-Term Rating.

SUBSIDIARY AND AFFILIATED COMPANIES

The National Ratings of KS would be similarly affected by changes in the parent's National Ratings, which would indicate a shift in the parent's ability to support KS. The ratings could also be affected by any perceived changes in the propensity of KBank to support KS - for example, if the parent materially reduced its shareholding or its marketing and management linkages. However, Fitch does not expect such changes in support propensity in the medium term.

Please note that only the Bank Rating Criteria, National Scale Ratings Criteria, Non-Bank Financial Institutions Rating Criteria were used in the analysis for these ratings.

Additional information is available on www.fitchratings.com