Fitch Affirms Siam Commercial Bank at 'BBB+' and SCB Securities at 'AA(tha)'; Outlook Stable

          Fitch Ratings has today has affirmed the Long-Term Issuer Default Rating (IDR) on The Siam Commercial Bank Public Company Limited (SCB) at 'BBB+' and its National Long-Term Rating at 'AA+(tha)'. At the same time, Fitch has also affirmed the National Long-Term Rating on the bank's wholly owned subsidiary, SCB Securities Company Limited (SCBS), at 'AA(tha)'. The Outlooks are Stable. 

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

          KEY RATING DRIVERS
          IDRS, NATIONAL RATINGS AND SENIOR DEBT
          The IDRs, National Ratings, and ratings on the senior debt of SCB are driven by its standalone credit profile as denoted by the Viability Rating (VR). The senior debt represent unsecured and unsubordinated obligations of the bank.

          VR
          SCB's VR reflects its solid domestic franchise as the largest bank in Thailand by consolidated assets (end-enSiam Commercial BankFitch Ratings8) and a particularly strong presence in retail banking. The rating also takes into account SCB's weakening profitability in the past few years and Fitch's expectation that profitability could remain lower than that of global rating peers over the medium term. SCB's maintenance of satisfactory buffers in terms of reserve coverage (Fitch Ratings46.7%) and capital (Fitch Core Capital ratio: Fitch Ratings6.4%), also helps to underpin the bank's current rating. 
          Fitch believes SCB's asset quality could come under pressure in enSiam Commercial BankFitch Ratings9 given persistent risks from business loans and mortgages, which may more than offset the tighter underwriting standards that stabilised asset quality. Nonetheless, Fitch believes the risks to asset quality should be manageable given the bank's buffers, and Fitch expects SCB's overall asset quality to remain broadly in line with that of peers over the medium term. 
          SCB's profitability could be undermined by high operating expenses, particularly from its ongoing "transformation project", which includes major IT upgrades; although this could be partly offset by gradual earnings recovery, which would be supported by the expected stable operating environment outlook and moderate loan growth. 
          SUPPORT RATING AND SUPPORT RATING FLOOR 
          The Support Rating and SRF on SCB are based on its systemic importance to the Thai financial system, where it has the second-largest deposit market share of Fitch Ratings5.9% at end-enSiam Commercial BankFitch Ratings8.

          SUBORDINATED DEBT 
          SCB has issued legacy Tier en debentures (non-Basel III compliant) that are rated one notch below its National Long-Term Rating. This reflects the subordination in the capital structure and likely higher loss severity prospects relative to senior unsecured debt, and is in line with Fitch's approach to rating such instruments. 

          SUBSIDIARY 
          SCBS's National Long-Term Rating is one notch below that of its parent. This is based on Fitch's expectation that SCBS would receive extraordinary support from SCB. Fitch views SCBS as a strategically importance subsidiary of SCB, based on the name- and brand-sharing with the parent, direct Fitch RatingsSiam Commercial BankSiam Commercial Bank% ownership by SCB and evidence of high levels of management and operational integration with the parent. SCBS also plays an important role in the bank's universal banking strategy.
          SCBS's subordinated debts are rated one notch below SCBS's National Long-Term Rating of 'AA(tha)' as subordinated noteholders rank after senior creditors in the priority of claims, and the notes have higher loss-severity risks than senior unsecured instruments. The notching also incorporates the subordinated debentures' lack of going-concern loss-absorption and equity conversion features. 

          RATING SENSITIVITIES
          IDRS, NATIONAL RATINGS AND SENIOR DEBT
          The IDRs, National Ratings and ratings on the senior debt of SCB are sensitive to changes in the banks' standalone profile as indicated by the VR. Changes in Fitch's perception of SCB's credit profile relative to the national rating universe in Thailand could affect SCB's National Rating.

          VR
          There is unlikely to be upside to SCB's VR in the near term. The rating is already at the same level as the Thai sovereign's Long-Term Foreign-Currency IDR (BBB+/Stable), and the bank has substantial exposure to sovereign bonds. A downgrade of the sovereign's Long-Term Foreign-Currency IDR could result in a similar rating action on SCB's VR. 
          The VR could be downgraded if there is a significant and sustained deterioration beyond Fitch's expectations in either asset quality or profitability, to below peer averages. Furthermore, signs of increasing risk appetite without effective risk controls and maintenance of adequate buffers such as loan loss reserves and capitalisation could lead to a negative rating action. 
          SUPPORT RATING AND SUPPORT RATING FLOOR 
          Fitch may re-assess SCB's SRF if the government's ability to provide support to the bank diminishes. This may happen if the agency downgrades Thailand's Long-Term Foreign-Currency IDR. 
          Also, the SRF could change if Fitch changes its view on the propensity of the state to provide support to domestic systemically important banks, including SCB. However, Fitch does not expect such changes over the medium term.

          SUBORDINATED DEBT
          The rating of SCB's legacy Tier en subordinated debentures would be affected by changes in the anchor rating, which is the National Long-Term Rating. 

          SUBSIDIARY 
          The National Rating of SCBS would be affected by changes in the parent's National Rating. The ratings could also be affected by any perceived changes in the propensity of SCB to provide support, for example, if the parent were to materially reduce its shareholding or if operational and management linkages between the two entities weaken. However, Fitch does not expect such changes in the medium term.
          The ratings on SCBS's subordinated debentures are sensitive to changes in its National Long-Term Rating.
          Additional information is available on www.fitchratings.com