KEY RATING DRIVERS
The AT1 capital instruments are rated four notches below the anchor rating, UOBT's National Long-Term Rating of 'AAA(tha)'. The notching is consistent with Fitch's approach for similar instruments that would be issued by the bank's parent, Singapore-based United Overseas Bank Limited (UOB, AA-/Negative), which, in turn, is in line with the baseline approach for these instruments in Fitch's criteria.
UOBT's National Long-Term Rating reflects expectations of extraordinary support from UOB. Fitch uses UOBT's support-driven rating as anchor for the AT1 notes, rather than its standalone credit profile, because the agency expects that pre-emptive support from UOB would flow to the Thai subsidiary and partly mitigate non-performance risk on the instruments.
Key terms of the notes are in line with Bank of Thailand's requirements for AT1 instruments. The rating reflects that there are no additional features that increase non-performance risk, such as a profit test on coupon payments, or the presence of unusually thin capital buffers or distributable reserves.
For further details on UOBT's key rating drivers and sensitivities, please see Fitch Affirms United Overseas Bank Thai at 'A-' and 'AAA(tha)'; Outlook Stable
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Any negative rating action on UOBT's National Long-Term Rating would have a similar impact on the rating of the bank's AT1 instruments. This could occur if there were substantial changes to UOB's ability to support UOBT. However, the parent's international-scale rating would have to be downgraded by multiple notches before there would be any impact on UOBT's ratings on the Thai national scale.
Rating downside could also stem from a reduced propensity by UOB to support UOBT. This may be indicated by a decline in UOB's shareholding in UOBT to below 75%, combined with reduced management control, operational integration and strategic ties. Such a substantial decline in linkages would cause the anchor rating for the AT1 notes to become UOBT's standalone credit profile, leading to a multi-notch downgrade. However, Fitch does not expect any changes in support propensity to occur in the medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no rating upside on the notes, as the anchor rating, the National Long-Term Rating, is at the top end of the scale.
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
UOBT's ratings are driven by the ratings of its parent, UOB.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings