Fitch Affirms KASIKORNBANK at 'BBB' and 'AA+(tha)'; Outlook Stable

Tuesday 02 August 2022 08:41
Fitch Ratings has affirmed KASIKORNBANK Public Company Limited's (KBank) Long-Term Issuer Default Rating (IDR) at 'BBB' and National Long-Term Rating at 'AA+(tha)'. The Outlook is Stable. Fitch has also affirmed the bank's Viability Rating (VR) at 'bbb' and its Government Support Rating (GSR) at 'bbb'.

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

VR and Support Drives IDR: KBank's Long-Term IDRs and National Ratings are underpinned by the bank's standalone credit profile, as indicated by its VR, and Fitch's expectation of support from the Thai government, as denoted by the GSR. KBank's Short-Term IDR is at the higher option of 'F2', to reflect that the likelihood of government support is more certain in the near term. The National Ratings also take into account a comparison of the bank's credit profile relative to other entities rated on the Thai national scale.

Environment Recovering from Pandemic: The operating environment (OE) is gradually improving, which will support banks' performance, with Fitch expecting GDP growth of 3.2% in 2022 and 4.5% in 2023. The OE score is unchanged at 'bbb' with a stable outlook, above the implied score in the 'bb' category as Fitch applies a positive adjustment based on the Thai sovereign rating of 'BBB+' with Stable Outlook. The sovereign has the ability and willingness to support business activity and market stability, as evident from its measures during the pandemic.

Strong Domestic Franchise: KBank's VR reflects its status as one of Thailand's largest banks, with a strong deposit market share. While it has a diverse client base, KBank has particular expertise in the SME segment. The bank has a strong transactional banking platform, including popular mobile applications that support its competitive strengths in SME and retail banking and enhance cross-selling opportunities.

Risk Profile Reflects Exposures: Fitch has revised KBank's risk profile score to 'bbb-'/stable from 'bbb'/negative as we have re-assessed the bank's risk appetite relative to domestic peers and in response to medium-term challenges. The bank has experienced relatively high loan growth despite the challenging environment, and we believe it will continue to be opportunistic in seeking growth. Furthermore, the bank's exposures to higher-risk client segments could lead to more variability in risks compared with other large commercial peers.

Stabilising Impaired Loans: The bank's implied score for asset quality is in the 'bb' category, but the assigned score is 'bbb-' as Fitch applies a positive adjustment for Kbank's collateral and reserves. We see that the downside risks are mitigated by high collateral coverage for its SME portfolio, and the bank's acceptable loan-loss allowance buffer (137% at end-March 2022) and sound earnings capacity. We revised the outlook for the asset-quality score to stable from negative as we see near-term pressures easing slightly, and Fitch expects key asset-quality metrics to be stable over the next one to two years.

Gradual Earnings Recovery: Fitch expects KBank's profitability to gradually recover, driven by lower credit costs, increased interest income from loan expansion, low funding costs and continued cost control. KBank's loan-impairment charge is likely to decline from the peak of 48% in 2020 due to past pre-emptive provisioning. KBank's earnings, such as in terms of operating profit/risk-weighted assets (latest four-year average: 2.2%), are consistently better than the sector average, and Fitch expects this to continue, although this partly reflects the bank's risk appetite.

Satisfactory Capital Management: Fitch expects KBank to maintain a steady common equity Tier 1 (CET1) ratio in the range of 15%-17% over the next three years in line with its 'bbb+' score. Fitch expects the bank's plan to increase its stake in PT Bank Maspion Indonesia Tbk (Maspion) to have a minimal impact on capital given the small deal size. Meanwhile, KBank's sound earnings capability would support the bank's internal capital generation over the next several years.

Stable Funding and Liquidity: KBank's funding profile is supported by its sound transactional banking franchise, particularly for retail and SME clients. The bank has a favourable deposit mix with lower-cost current and saving accounts (CASA) comprising 82% of total customer deposits, which leads to a stable funding profile. The bank's loan/customer deposit ratio remained stable at 94% at end-March 2022, which is in line with the sector average of 93%.

Clear Systemic Importance: KBank's GSR is driven by its high importance to the Thai financial system, which leads to the government's high propensity to extend support to the bank. Kbank is designated as one of the country's six domestic systemically important banks by the Bank of Thailand, reflecting its significant scale and financial system linkages. The GSR also takes into account the Thai government's ability to support banks, which is indicated by the sovereign Long-Term IDR, and Fitch's view that the sovereign's financial flexibility relative to the rating level remains high.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative action on both KBank's GSR and VR would lead to similar action on the bank's Long-Term IDR, National Long-Term Rating and senior debt rating. KBank's National Long-Term Rating could also be downgraded to 'AA(tha)' if, in Fitch's opinion, its credit profile weakens relative to entities rated on the Thai national rating scale.

The bank's Short-Term IDR would be downgraded if its Long-Term IDR was downgraded to 'BBB-'.


The VR could be downgraded to 'bbb-' if KBank's financial position deteriorates more than we expect. This may, for example, arise from heightening macroeconomic risks and a stalled economic recovery resulting from global economic headwinds, which could indicate that the bank's risk appetite and/or business profile is weaker than we currently assess. For example, such stresses may be indicated by an impaired loans ratio of above 6% for a sustained period (1Q22: 4.4%), combined with weaker loss absorption buffers, such as a CET1 ratio of below 13% (1Q22: 15.3%) and a loan-loss coverage ratio of below 120%, and/or not sustaining an operating profit/risk-weighted asset ratio above 1.5% (1Q22: 2.1%).


There could be negative action on the GSR if the government's ability to provide support declines, which could be evident in a downgrade of Thailand's Long-Term Foreign-Currency IDR. A reduction in the government's propensity to support KBank may also lead to negative rating action. This may, for example, be seen through a large decline in the bank's market share or significant regulatory changes. However, we believe there are limited prospects of a weaker government propensity to support KBank over the medium term.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There could be positive rating action on KBank's IDRs, National Ratings and senior debt ratings following similar changes in either its GSR or VR. The National Ratings on KBank would also take into account the relative creditworthiness of peers rated on the national scale.


KBank's VR could be upgraded to 'bbb+' if key metrics improved for a sustained period, with a business profile that leads to financial performance that is consistently better than the sector's without any meaningful increase in risk appetite. This would likely be aided by a significantly stronger operating environment, and may be evident in key financial ratios, such as an operating profit/risk-weighted asset ratio above 2.5% and the four-year average impaired-loan ratio being less than 3%, combined with the maintenance of key buffers, such as a CET1 ratio of above 16%. Nonetheless, near-term upside appears limited given the operating environment remains challenging.


An upgrade of the GSR may be triggered by a similar action on Thailand's Long-Term Foreign-Currency IDR as this would indicate the government's higher ability to support systemically important banks such as KBank. Any upward revision of the GSR would also need to consider whether the government's propensity to support banks remains intact.

KBank's senior debt is are rated at the same level as the bank's Long-Term IDR, as they represent the bank's unsubordinated and unsecured obligations.

KBank's Basel III Tier 2 subordinated notes are rated two notches below the anchor rating, the VR, to reflect loss severity risk. There is no additional notching for non-performance risk due to the absence of going-concern loss-absorption features. The notching is in line with Fitch's approach in the criteria to rating similar subordinated debt instruments.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

KBank's senior debt would be downgraded if there was negative rating action on the anchor rating, the Long-Term IDR.

Any negative rating action on the bank's VR would have a similar impact on the bank's subordinated notes.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of the Long-Term IDR would lead to similar rating action on the bank's senior debt ratings.

KBank's subordinated debt instruments would be upgraded if the Viability Rating is upgraded.

The operating environment score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reason: sovereign rating (positive).

The asset quality score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reason: collateral and reserves (positive).

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit

The principal sources of information used in the analysis are described in the Applicable Criteria.

KBANK's GSR is linked to Thailand's Long-Term Foreign-Currency IDR.

The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit

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Source: Fitch Ratings