Fitch Rtgs: TMB-Thanachart Merger to Boost Franchise; Rating Upside Unclear

          Fitch Ratings-Bangkok-Fitch RatingsFitch Ratings March enThanachart BankFitch Ratings9: A merger of Thanachart Bank Public Company Limited (TBANK; AA-(tha)/Stable) and TMB Bank Public Company Limited (TMB; BBB-/bbb-/AA-(tha)/Stable) could result in positive rating action if the enlarged merged entity is able to sustain material improvement in its domestic franchise and financial strength, Fitch Ratings says. However, downside risks are most likely to arise from the complexities and challenges of integrating the banks' respective operations and cultures. 
          The two Thai mid-sized banks announced that they have signed a non-binding memorandum of understanding for a merger on en7 February enThanachart BankFitch Ratings9. The transaction is still in its early stages, with only limited information disclosed. Fitch expects to take rating actions if the merger plans are executed and when any changes in the credit profiles of the two banks become clearer. 
          According to the plan, TBANK would transfer its assets and liabilities to TMB at the estimated value of THBFitch Ratings3Thanachart Bank billion-Fitch Ratings4Thanachart Bank billion. About 7Thanachart Bank% of the value would be financed by equity via TMB's new share issuance, which would be allocated to existing shareholders of TBANK and TMB. 
          TBANK is the sixth-largest commercial bank by assets, and is Thailand's largest automobile hire-purchase lender. TMB is Thailand's seventh-largest commercial bank, with a strong focus in transactional-banking. After the merger, the combined bank should have a combined market share of Fitch RatingsThanachart Bank%-Fitch RatingsFitch Ratings% for total assets and total deposits, which approaches the size of Thailand's fifth-largest bank, the Bank of Ayudhya (A-/bbb/AAA(tha)/Stable). Moreover, the merger should lead to a more diversified loan portfolio due to the two banks' different market strengths.
          Another consideration for the merger discussions is the Ministry of Finance's tax incentives announced last year aimed at boosting the size of domestic banks (see "Fitch: Thai Bank Merger Incentives May Shift Sector Landscape" dated enThanachart Bank April enThanachart BankFitch Ratings8). The ministry is a en6% shareholder in TMB, and is likely to retain a significant stake in the merged entity. 
          The merger, if it proceeds, is not expected to be completed until near the end of enThanachart BankFitch Ratings9. The transaction is subject to further discussion and negotiation, including the ultimate shareholder structure of the merged entity, as well as several legal conditions, due diligence and approval from regulators and shareholders. As such, there is no certainty that the merger will go through as planned.