Fitch has withdrawn EXIM's Support Rating of '2' and Support Rating Floor of 'BBB+', because the ratings are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on 8 September 2022. In line with the latest criteria, we have assigned EXIM a Government Support Rating (GSR) of 'bbb+'.
KEY RATING DRIVERS
Government Support Drives Ratings: EXIM's IDRs and National Ratings are driven by the bank's GSR and our expectations of extraordinary support from the Thai government, if needed. The GSR and, hence, the Long-Term IDR are equalised with Thailand's sovereign rating (BBB+/Stable/F1). The National Long-Term Rating is at the highest level on the national rating scale to reflect the lowest expectation of default risk among Thai-based issuers. We have not assigned a Viability Rating to EXIM, as a standalone assessment is less meaningful because of its role as a policy bank.
Important Policy Role: The bank's mandate is to support the country's international trade and investment activities, particularly for entrepreneurs that are underserved by commercial institutions. We believe EXIM's policy role is strategically important to the government, since exports comprise 58% of Thailand's GDP. The bank also helps to build exporters' confidence via trade-related insurance products. It is the only domestic specialised financial institution that provides international trade and investment insurance, making its policy role difficult to transfer to other state banks.
Supportive Role During Pandemic: EXIM played an important role in supporting its clients during the Covid-19 pandemic. It provided low-interest credit facilities, working capital, debt moratoriums and post-pandemic business rehabilitation financing. Loans outstanding surged by 11% in 2020 and 13% in 2021, reflecting its countercyclical role.
Full State Ownership: The Ministry of Finance (MoF) has full ownership and control of EXIM. The bank's board of directors comprises representatives from several government agencies, including the MoF's Fiscal Policy Office, the Ministry of Industry and the Ministry of Commerce. This co-ordination supports EXIM's ability to respond to state directives.
Consistent State Support: EXIM receives ongoing state support, including via capital injections and interest compensation for public-service loan programmes. The most recent support was a THB2.2 billion capital injection in 2021, with a further THB2.0 billion likely for 2022. EXIM also benefits from its policy-bank status, which helps it access debt capital markets. EXIM's establishing act allows it to request government guarantees for debt issues of up to 12x its equity. No guarantees have been needed, but this ability could mitigate any funding risks from its reliance on wholesale funding.
Improving Performance: EXIM's earnings performance has improved, with a net profit of THB1.5 billion recorded in 2021, from a net loss of THB1.3 billion in 2020. This followed a drop in credit costs of THB0.8 billion, from THB3.3 billion in 2020. We expect earnings prospects will remain reasonable over the next several years on improving business activity and stable asset quality. Therefore, the bank is not likely to have major new provisioning requirements.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A sovereign rating downgrade would indicate a weakening ability of the government to support policy banks, such as EXIM, and would have a similar impact on EXIM's GSR and, hence, its Long-Term IDR. However, the National Rating is unlikely to be impacted and is likely to be perceived as among the strongest on the national rating scale as long as the GSR is equalised to that of the Thai sovereign rating.
A deterioration in Fitch's perception of the state's propensity to support the bank could also affect the GSR and Long-Term IDR. This could arise from a large decline in the state's ownership of the bank, a narrower policy role and state linkages or if the bank changed its legal status and was no longer a specialised financial institution.
EXIM's National Ratings could also be affected, though any rating action would depend on Fitch's assessment of EXIM's relative strengths compared with other entities on the Thai national rating scale. In any case, Fitch views any changes in support propensity as unlikely in the medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the Thai sovereign Long-Term IDR would be likely to lead to an upgrade of EXIM's GSR and Long-Term IDR, assuming other support assumptions remain unchanged. However, there is no upside to EXIM's National Ratings, which are already at the highest level on the scale.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
EXIM's senior debt is rated at the same level as its Long-Term IDR and National Long-Term Rating, as they represent the bank's unsubordinated and unsecured obligations.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The senior debt ratings would be downgraded if the IDR and National Long-Term Rating were to be downgraded.
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 senior debt ratings. The National Rating on EXIM's senior debt is at the highest level on the scale and hence there is no upside.
BEST/WORST CASE RATING SCENARIO
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 https://www.fitchratings.com/site/re/10111579
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
EXIM's ratings are linked to Thailand's sovereign ratings.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
Source: Fitch Ratings