KEY RATING DRIVERS
Ratings Reflect Shareholder Support: UOBCS's National Ratings are driven by Fitch's expectation that its parent, United Overseas Bank (Thai) Public Company Limited (UOBT; AAA(tha)/Stable), would provide extraordinary support to the newly-acquired consumer lending subsidiary, if required. Fitch uses its shareholder support framework to rate UOBCS as we view UOBCS as a strategically important subsidiary of UOBT.
UOBCS' National Ratings also consider the bank's credit profile relative to other entities rated on the Thai national scale, and reflect that the issuer has the lowest expectation of default risk compared with all other issuers or obligations in the country. UOBCS's 'F1+(tha)' National Short-Term Rating corresponds directly to its National Long-Term Rating, and indicates the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the country.
Strategically Important Role: UOBCS was formerly Citicorp Leasing (Thailand) Limited. It was part of UOBT's acquisition of Citibank, N.A.'s (A+/Stable) consumer lending operations in Thailand, which were transferred to UOBT in November 2022. Fitch expects UOBCS to have a significant role in supporting UOBT's market position in Thailand, particularly its presence in retail banking. The acquisition gives UOBT a wider range of product and services together with a broader client base, and may encourage business referrals and promote synergies between UOBT and UOBCS.
Clear Reputational Linkages: UOBCS is 99.99% owned by UOBT, with clear brand linkages and management control. UOBT appointed its senior management as UOBCS's key board members and top management. Fitch believes there would be a high reputational risk to the parent in the case of a default at the subsidiary.
Integration to Gradually Improve: Fitch expects the level of integration between UOBCS and UOBT to gradually increase over time, as the UOB group incorporates its operational systems and processes into UOBCS. UOBCS had a record of profitability and adequate risk controls as part of the Citibank group.
Liquidity Risks Mitigated by Support: Fitch considers UOBCS's funding risks to be low. The company is able to access credit facilities from UOBT as well as from the UOB group, if required. This would complement UOBCS' ongoing funding arrangements through external bank facilities and the local wholesale market.
Strong Parental Support Ability: UOBCS's assets make up only around 3.3% of UOBT's total assets at end-2021, such that any required support would not be a material burden for UOBT. The ability to support UOBCS is reflected in UOBT's rating, which is ultimately anchored by its Singapore-based parent, United Overseas Bank Limited (UOB; AA-/Negative), the direct owner of 99.7% of UOBT.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
There could be downside risks to UOBCS's National Long-Term Rating if the parent's ability to support the subsidiary were to substantially deteriorate. For example, a downgrade of UOBT's Long-Term Issuer Default Rating would indicate a reduced ability to support the subsidiary, and a multiple-notch downgrade could lead to negative rating action on UOBCS - although Fitch would also assess the subsidiary relative to other credit profiles on the Thai national rating scale.
A reduced propensity for support could also lead to a downgrade of UOBCS's ratings. This could be evident from a significant weakening in linkages with UOBT, such as a reduction in shareholding to below 75% along with reduced levels of management control and strategic coordination, or signs of a declining commitment by the parent to provide financial and operational support to the subsidiary. However, Fitch does not expect any changes in support propensity in the near to medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no upside to UOBCS's ratings, which are at the top end of the Thai national rating scale.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
UOBCS's senior debt is rated at the same level as the company's National Long-Term Rating, as it represents the unsecured and unsubordinated obligations of the borrower.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
UOBCS's senior debt ratings could be downgraded following a similar rating action in its National Ratings. However, an upgrade is not possible because the senior debt ratings are already at the top end of our Thai National Rating scale.
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
UOBCS's ratings are linked to UOBT's ratings.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings