Bangkok--7 Jun--Fitch Ratings
Fitch Ratings has today affirmed the Support rating of Thai-based Government Savings Bank (“GSB”) at ‘2’. Thailand’s Ministry of Finance exercises direct supervision over GSB together with the Bank of Thailand. Under the GSB Act, which governs its operations, the government provides a guarantee on deposits and other financial obligations of the bank. Given that GSB is a wholly-owned state bank, and taking into account its public policy role, strong deposit franchise and government guarantee, Fitch believes that there is a high probability that state support would be forthcoming, if necessary.
Since the financial system crisis of 1997 in Thailand, GSB has expanded its business into retail, residential property and commercial and infrastructure lending. About half of its lending is to consumers and private enterprises, while the other half is to government agencies and state enterprises to fund government economic development and social welfare projects. Mortgage loans made up 30% of its loan book in 2005 (up from 17% in 2000). Local community loans accounted for 28% at 2005. GSB has supported the government’s policy to develop the grassroots economy, aimed at reducing poverty and creating more opportunities for low-income individuals.
The bank’s operating results improved in 2005, with net income rising to THB12.3 billion from THB11.9bn in 2004, mainly due to loan growth and lower funding costs. The net interest margin also rose to 3.3% from 3.1% in 2004. With improved net interest income, reduced personnel expenses and the absence of substantial investment losses in 2004, GSB’s cost-to-income ratio improved to 38.1% in 2005 from 47% in 2004. This is lower than that of many other Thai banks, mainly due to GSB’s limited investment in technology.
GSB also expects to expand the scope of its banking activities. It has been in the process of restructuring and strengthening its workforce through a series of early retirement programmes, new hiring and intensive training courses. The bank’s management has a long-term plan to expand GSB’s fee-based activities to increase the proportion of fee income to about 20% of total income from 4.5% in 2005.
At end-2005, loan-loss reserves amounted to THB11.6bn, or 81.2% of reported impaired loans, which rose to THB14.3bn or 3.8% of total loans in 2005. While reserve coverage appears strong, GSB’s support of government policies and its expanding loan activity beyond its previously restricted lending scope, may lead to deterioration in asset quality in the medium term, particularly given the weakening economy.
GSB’s total capital ratio, which stood at 25.5% of risk-weighted assets at end-2005, is very strong. Its equity, which totalled THB79.3bn, also appears solid at around 11.7% of total assets. A large portion of the bank’s assets are government debt securities.
GSB was established as the Saving Office within the Royal Treasury in 1913 and was renamed the Government Savings Bank in 1946. Its main objective is to mobilise and promote domestic savings, give lower-income borrowers access to housing, provide small-sized Thai companies access to business loans and support the government’s development policies.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.