KEY RATING DRIVERS
The subordinated notes are rated two notches below BAY's National Long-Term Rating to reflect higher loss-severity risk relative to senior unsecured instruments, in line with the baseline notching in Fitch's criteria. The notes do not incorporate going-concern loss absorption, and hence there is no additional notching for non-performance risk.
The terms and conditions of the notes include a non-viability trigger, which is defined in line with local standards as emergency capital assistance from the central bank or any other empowered government agency.
BAY's ratings are driven by Fitch's view that the bank is a strategically important subsidiary of Japan-based MUFG Bank, Ltd. (A-/Stable). MUFG owns 76.9% of BAY and there are significant levels of management control and integration. BAY is one of the parent's largest overseas subsidiaries, and provides a full range of banking products and services in Thailand, which is a key market for Japanese investment in the region.
For further details on BAY's key rating drivers and sensitivities, please refer to Fitch Affirms Bank of Ayudhya at '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 BAY's National Long-Term Rating would lead to a downgrade of the subordinated notes.
A reduced ability or propensity of MUFG to support BAY could lead to negative rating action on the Thai subsidiary's National Long-Term Rating - although any assessment would also take into account relativities on the Thai national rating scale with similarly rated peers.
For example, a downgrade of MUFG's Long-Term IDR would likely lead to similar action on BAY's ratings. A reduction in MUFG's shareholding to below 75%, combined with reduced control, synergies, and operational integration, could also lead to negative action on BAY's ratings.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no upside to BAY's Basel III Tier 2 subordinated notes because the anchor rating, the bank's National Long-Term Rating, is at the top end of 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
The IDRs, Shareholder Support Rating and National Ratings of BAY are linked to the credit profile of MUFG.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings