The debentures will have a tenor of 10 years, with an option to redeem after five years. The proceeds will be used to strengthen the bank's Tier 2 capital, liquidity management and for general corporate purposes.
KEY RATING DRIVERS
The Basel lll Tier 2 subordinated notes are rated two notches below KTB's National Long-Term Rating, in line with Fitch's baseline approach in our criteria to reflect their higher loss-severity risk relative to senior unsecured instruments. There is no additional notching for non-performance risk, as the notes do not incorporate going-concern loss absorption, such as coupon omission or deferral features.
Terms and conditions of the notes are in line with similar issuances in the local market. The non-viability trigger is defined as emergency capital assistance from the central bank or any other empowered government agency. KTB's National Long-Term Rating is driven by its Government Support Rating (GSR) of 'bbb+' and reflects its credit profile that is among the strongest compared to other entities rated on the Thai national scale. Fitch uses the support-driven National Rating as the anchor rating for these Tier 2 notes, to reflect the agency's expectation that the state would provide pre-emptive support to KTB prior to the point of non-viability. This is in line with our approach for past Basel III Tier 2 issuances by KTB.
Fitch regards KTB as systemically important to the Thai financial system, with a deposit market share of around 16% and a designation by the Bank of Thailand as one of the country's six domestic systemically important banks. Fitch also believes KTB is strategically important to the government as it is the only commercial bank that is majority-owned by the state. A unit of the Bank of Thailand owns 55% of KTB; Fitch believes the state's shareholding in the bank is long term and strategic.
For further detail on KTB's key rating drivers and sensitivities, please see Fitch Upgrades Krung Thai Bank to 'BBB+' and 'AAA(tha)'; Outlook Stable, published 1 December 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of KTB's National Long-Term Rating would have a similar effect on the rating of the Tier 2 subordinated debt.
Negative rating action on KTB's GSR would most likely lead to similar action on KTB's National Long-Term Rating, although Fitch would also take into account relativities with other rated entities in the national-rating universe in Thailand. KTB's GSR could, for example, be downgraded if there was a decline in the government's propensity to support the bank. For example, this may arise from a sharp decline in its systemic importance, along with a substantial decline in the level of government linkages. However, Fitch views any decline in support propensity as unlikely in the near term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no upside for the rating on KTB's Thai-baht subordinated debt instruments, as the anchor rating, the National Long-Term Rating, is at the highest level on the scale.
DATE OF RELEVANT COMMITTEE
30 November 2021
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
KTB's GSR, IDRs and National Ratings (including the rating on this subordinated debt issue) are linked to Thailand's sovereign rating (BBB+/Stable).
Additional information is available on www.fitchratings.com
Source: Fitch Ratings