Fitch Affirms Thai Mid-Sized Banks; Revises Thanachart Bank’s Outlook to Stable

           Fitch Ratings-Bangkok/Singapore-Bank of Ayudhya3 Feb Fitch RatingsBank of AyudhyaThanachart Bank5: Fitch Ratings has affirmed the ratings on three Thai medium-sized banks: Bank of Ayudhya Public Company Limited (BAY), Thanachart Bank Public Company Limited (TBANK), and TMB Bank Public Company Limited (TMB). Fitch has also affirmed the ratings on TBANKFitch RatingsThanachart Bank7;s parent Thanachart Capital Public Company Limited (TCAP), and revised the Outlooks on TBANKFitch RatingsThanachart Bank7;s Long-Term Issuer Default Rating (IDR) and National Long-Term Rating to Stable from Negative. 
          Fitch has simultaneously withdrawn TBANKFitch RatingsThanachart Bank7;s Long-Term and Short-Term IDRs, Support Rating, and Support Rating Floor, and TCAPFitch RatingsThanachart Bank7;s Support Rating and Support Rating Floor. These ratings are withdrawn as they are no longer considered by Fitch to be relevant to the agencyFitch RatingsThanachart Bank7;s coverage.
          A full list of rating actions is included at the end of this commentary.
KEY RATING DRIVERS - VRs
          The Viability Ratings (VRs) of BAY, TBANK and TMB reflect their reasonable domestic franchises as medium-sized commercial banks in Thailand. The banks are the fifth, sixth, and seventh largest banks respectively, with deposit market shares in excess of 5.Bank of Ayudhya%. 
          The operating environment remains weak and is an important factor for the VRs. There are no clear signs of a robust economic recovery, and there are high levels of private-sector leverage. These external factors could pressure asset quality at all three banks. 
          BAYFitch RatingsThanachart Bank7;s integration with the Bank of Tokyo Mitsubishi UFJ, Ltd.Fitch RatingsThanachart Bank7;s (BTMU; A/Stable) Bangkok branch in January Fitch RatingsBank of AyudhyaThanachart Bank5 will lead to a more diversified portfolio and greater strength in corporate banking. Fitch believes that capitalisation should remain adequate for growth. 
          TBANKFitch RatingsThanachart Bank7;s overall credit profile remains satisfactory and in line with similarly-rated regional peers, despite the weak operating conditions recently seen in its core hire purchase business. TBANK also benefits from ordinary support from its 49% shareholder the Bank of Nova Scotia (AA-/Stable), which includes management and operational support as well as an uncommitted credit facility. 
          TMBFitch RatingsThanachart Bank7;s ratings are supported by continued improvements in its financial performance. TMBFitch RatingsThanachart Bank7;s earning further improved in Fitch RatingsBank of AyudhyaThanachart Bank4, while its NPL ratio has declined and its reserve coverage ratio is among the highest in the industry.

RATING SENSITIVITIES - VRs
          BAYFitch RatingsThanachart Bank7;s VR could be pressured by a significant decline in capitalisation or loan loss reserve buffers. Meanwhile, there could be upside to the VR if the integration with BTMU results in a stronger profitability and capitalisation measures, although Fitch views that operational and implementation challenges from the integration are high. 
          TBANKFitch RatingsThanachart Bank7;s recent sound performance, including improvements in capitalisation and asset quality has reduced the risk of a downgrade and led to the revision in the Outlook. However, the VR would face pressure if there was a significant reversal of recent improvements in asset quality, leverage, and liquidity. Any indications of reduced ordinary support from Bank of Nova Scotia to TBANK could also have a negative ratings impact. 
          TMBFitch RatingsThanachart Bank7;s VR could be hurt by a major deterioration in TMBFitch RatingsThanachart Bank7;s financial performance from a weak economy or from an increase in the bankFitch RatingsThanachart Bank7;s risk appetite. Meanwhile, the bankFitch RatingsThanachart Bank7;s ability to maintain or improve its financial performance and a clear improvement in its domestic franchise would be positive to the ratings.

KEY RATING DRIVERS - IDRs, National Ratings and Senior Debt
          BAYFitch RatingsThanachart Bank7;s IDRs, National Ratings, and senior debt rating reflects the strong probability of support from BTMU, its 76.9% shareholder. Fitch considers BAY a strategically important subsidiary of BTMU, and a key part of the groupFitch RatingsThanachart Bank7;s regional banking strategy. 
          TBANK and TMBFitch RatingsThanachart Bank7;s IDRs, National Ratings, and Senior Debt are driven by their VRs.
          The revision of TBANKFitch RatingsThanachart Bank7;s rating Outlook to Stable from Negative reflects FitchFitch RatingsThanachart Bank7;s expectation that TBANK could manage through the weak operating environment as evidenced in its performance in Fitch RatingsBank of AyudhyaThanachart Bank4. Fitch also believes TBANKFitch RatingsThanachart Bank7;s improved loan loss reserve coverage and Tier Thanachart Bank capital are satisfactory buffers against the downside risks. 
          TCAP's National Ratings are notched down from its core operating subsidiary TBANK, to reflect its structural subordination, and the presence of large minority interests. The Outlook matches that of TBANK.

RATING SENSITIVITIES - IDRs, National Ratings and Senior Debt
          BAYFitch RatingsThanachart Bank7;s Long-Term IDR is already at the Country Ceiling, while its National Long-Term Rating is the highest on the national scale. However, the ratings may be impacted by any perceived reduction in BTMUFitch RatingsThanachart Bank7;s propensity to support BAY, such as through a material reduction in shareholding, although such an action appears unlikely in the short-term. A downgrade at BTMU could also have a similar negative impact on BAYFitch RatingsThanachart Bank7;s ratings. 
          The IDRs and National Ratings of TBANK and TMB would be impacted by any changes in their VRs. 
          Any change in TBANK's National Ratings could have a corresponding impact on TCAP.

KEY RATING DRIVERS - Support Rating and Support Rating Floor
          TBANKFitch RatingsThanachart Bank7;s and TMBFitch RatingsThanachart Bank7;s Support Rating and Support Rating Floors (SRF) reflect that they are of some systemic importance to the financial sector, with a moderate probability of state support in case of need, although such probability is likely to be lower compared to the top-four commercial banks in Thailand. 
          BAYFitch RatingsThanachart Bank7;s Support Rating is driven by institutional factors, reflecting FitchFitch RatingsThanachart Bank7;s view on its strategic importance to the BTMU group.

RATING SENSITIVITIES - Support Rating and Support Rating Floor
          Any very significant change to the market shares of TBANK and TMB could have an impact on the Support Rating and SRF of the banks, although Fitch believes this would be unlikely in the short to medium term. 
          Any reduction in BAYFitch RatingsThanachart Bank7;s level of importance to the BTMU group could lead to a change in its Support Rating, though given the groupFitch RatingsThanachart Bank7;s recent moves to increase its shareholding in BAY this appears unlikely in the short term.

KEY RATING DRIVERS - Subordinated debt
          BAYFitch RatingsThanachart Bank7;s legacy (Basel II) subordinated debt is rated at Fitch RatingsThanachart Bank6;AA+(tha)Fitch RatingsThanachart Bank7;, one notch below BAYFitch RatingsThanachart Bank7;s National Long-Term Rating of Fitch RatingsThanachart Bank6;AAA(tha)Fitch RatingsThanachart Bank7; to take into account their subordination in the capital structure.
          TMBFitch RatingsThanachart Bank7;s Basel III Tier Fitch Ratings notes are rated one notch below TMBFitch RatingsThanachart Bank7;s National Rating to reflect their higher loss-severity risk relative to senior unsecured instruments arising from their subordinated status. Key terms of the notes include a partial rather than mandatory full write-down feature, and there is no going-concern loss absorption features.

RATING SENSITIVITIES - Subordinated debt
          BAYFitch RatingsThanachart Bank7;s subordinated debt would be impacted by changes in its support-driven National Rating. 
          TMBFitch RatingsThanachart Bank7;s subordinated notes would be impacted by any changes in its stand-alone credit profile, which would impact the National Rating.
          The list of rating actions is as follows:

BAY
Long-Term IDR affirmed at 'A-'; Outlook Stable
Short-Term IDR affirmed at 'FFitch Ratings'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at 'Thanachart Bank'
National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'FThanachart Bank+(tha)'
National long-term senior unsecured debt affirmed at 'AAA(tha)'
National short-term senior unsecured debt affirmed at 'FThanachart Bank+(tha)'
Legacy Basel II subordinated debt affirmed at 'AA+(tha)'
TMB
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
Short-Term IDR affirmed at 'F3'
USD3.Bank of Ayudhyabn senior unsecured medium-term note programme affirmed at 'BBB-'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'
National Long-Term Rating affirmed at 'A+(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'FThanachart Bank(tha)';
National subordinated debt rating affirmed at 'A(tha)'

TBANK
Long-Term IDR affirmed at 'BBB-'; Outlook revised to Stable from Negative, and withdrawn
Short-Term IDR affirmed at 'F3', and withdrawn
Viability Rating affirmed at 'bbb-', and withdrawn
Support Rating affirmed at '3', and withdrawn
Support Rating Floor affirmed at 'BB+', and withdrawn
National Long-Term Rating affirmed at 'A+(tha)'; Outlook revised to Stable
National Short-Term Rating affirmed at 'FThanachart Bank+(tha)'

TCAP
National Long-Term Rating affirmed at 'A(tha)' ; Outlook revised to Stable from Negative
National Short-Term Rating affirmed at 'FThanachart Bank(tha)'
Support Rating affirmed at '5', and withdrawn
Support Rating Floor affirmed at 'No Floor', and withdrawn

Contact:

Primary Analyst
Ambreesh Srivastava (International Ratings for BAY, TMB and TBANK)
Senior Director
+65 6796 7Fitch RatingsThanachart Bank8
Fitch Ratings Singapore Pte Ltd
6 Temasek Boulevard
#35-Bank of Ayudhya5 Suntec Tower Four
Singapore Bank of Ayudhya38986

Parson Singha (National Ratings for BAY)
Senior Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank5Thanachart Bank

Trin Siriwutiset (National Ratings for TMB)
Associate Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank54

Jindarat Laotaveerungsawat (National Ratings for TBANK and TCAP)
Associate Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank53

Secondary Analyst
Parson Singha (International Ratings for BAY, National Ratings for TMB)
Senior Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank5Thanachart Bank

Trin Siriwutiset (International Ratings for TMB)
Associate Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank54

Jindarat Laotaveerungsawat (International Ratings for TBANK, National Ratings for BAY)
Associate Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank53

Patchara Sarayudh (National Ratings for TBANK and TCAP)
Director
+66Fitch Ratings Thanachart BankBank of Ayudhya8 Bank of AyudhyaThanachart Bank5Fitch Ratings

Committee Chairperson
Mark Young
Managing Director
+65 6796 7Fitch RatingsFitch Ratings9
          Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
          Additional information is available on www.fitchratings.com
          Applicable criteria, "Global Financial Institutions Rating Criteria ", dated 3Thanachart Bank January Fitch RatingsBank of AyudhyaThanachart Bank4; "Assessing and Rating Bank Subordinated and Hybrid Securities Criteria ", dated 3Thanachart Bank January Fitch RatingsBank of AyudhyaThanachart Bank4; Fitch RatingsFitch RatingsBank of Ayudhya;Rating FI Subsidiaries and Holding CompaniesFitch RatingsFitch RatingsThanachart Bank;, dated Thanachart BankBank of Ayudhya August Fitch RatingsBank of AyudhyaThanachart BankFitch Ratings and "National Scale Ratings Criteria", dated 3Bank of Ayudhya October Fitch RatingsBank of AyudhyaThanachart Bank3; are available at www.fitchratings.com.
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