KEY RATING DRIVERS
Shareholder Support Drives Ratings: LHS's National Ratings are based on Fitch's expectation that there is a high probability its parent, LH Financial Group Public Company Limited (LHFG; AA+(tha)/Stable), would provide extraordinary support to the subsidiary, if needed. The Stable Outlook is consistent with LHFG's Outlook.
Fitch believes LHS is a strategically important subsidiary of LHFG based on the company's role within the group, the parent's close control and high levels of integration. The National Ratings also incorporate the company's credit profile relative to other entities on the Thai national rating scale.
Important Role and Synergies: LHS is the group's only securities arm, providing equity-related services to the group's retail and SME clients. Fitch expects linkages, such as cross-selling of financial products, marketing co-operation and business referrals, to continue, with the potential for enhancement. However, we do not regard LHS as a core subsidiary of LHFG, due to size limitations, as it makes up around 2.5% of the group's assets.
Significant Control and Integration: The high level of management control and operational integration with LHFG are evident from the parent's control over the board of directors and tight oversight of the operations. LHS's strategies are also closely aligned with those of the parent to support the provision of financial and investment services to the group's retail and SME clients.
Timely Ordinary Support: We believe LHFG and the group will continue to provide ordinary support to LHS in terms of operations and systems. Another LHFG subsidiary, Land and Houses Bank Public Company Limited (LH Bank: AA+(tha)/Stable), also provides credit facilities to LHS to support its liquidity management.
Ultimately Part of Taiwanese Group: LHFG has a small franchise in the Thai market, with its Thai bank subsidiary having a deposit market share of 1.4%. LHFG's ratings are driven by Fitch's expectations of extraordinary support from its controlling shareholder, Taiwan-based CTBC Bank Co., Ltd. (A/Stable/a). We believe that CTBC would not prevent support from flowing to LHS, if needed.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch would take negative action on LHS's ratings if the credit profile of its parent, as indicated by LHFG's National Long-Term Rating, were to deteriorate. This could arise due to negative rating action on LHFG, including because of reduced prospects for support from LHFG's parent, CTBC, which could lead to multi-notch downgrades of LHFG's and LHS's ratings.
There could also be rating downside if the parent's propensity to provide extraordinary support were to decline. This could happen if the parent were to reduce its shareholding to below 75%, or if there were weakening linkages in terms of integration and name or branding association, or any signs of a declining commitment to provide financial and operational support to its subsidiary. Any significant and persistent deterioration in LHS's performance, or a weakening in synergies between parent and subsidiary, could also lead to a more negative view around support prospects. Any negative rating action would also take into account relativities on the Thai national scale.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
We would upgrade LHS's National Long-Term Rating in the event of an upgrade of LHFG's National Long-Term Rating, which would indicate the parent's stronger support ability.
A greater propensity of the parent to provide support to LHS could also have a positive effect on the ratings of the subsidiary. There could be positive rating action if LHS plays a significantly more important role within the group. This could be indicated from a sustained and material increase in LHS's contribution to the parent and the group combined with an assessment that the group views LHS as a core and integral part of its business. Any assessment would also consider LHS's credit profile relative to Thai national rating peers.
There is no upside to the National Short-Term Rating, as it is already at the highest point on the scale.
DATE OF RELEVANT COMMITTEE
29 March 2023
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
LHS's ratings are linked to the local-currency credit profile of LHFG, as indicated by the bank holding company's National Long-Term Rating.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings