Fitch Ratings has affirmed CIMB Thai Bank Public Company Limited's (CIMBT) National Long-Term Rating at 'AA-(tha)'. The Outlook is Stable. Fitch has also affirmed the bank's National Short-Term Rating at 'F1+(tha)' and medium-term note (MTN) programme at 'AA-(tha)' and 'F1+(tha)'.
KEY RATING DRIVERS
Parental Support Driven: CIMBT's National Ratings are based on Fitch's belief that there is a high probability that its Malaysia-based parent, CIMB Bank Berhad (CIMB Bank), would provide extraordinary support to the Thai subsidiary, if required. Fitch uses its shareholder support framework to rate CIMBT, and we believe that CIMBT plays a strategically important role in the group.
CIMBT's National Ratings also take into account a comparison of the bank's credit profile with that of other entities rated on the Thai national scale.
Strategically Important Role: CIMBT has a significant role in the parent group's ASEAN strategy, given that Thailand is one of the largest economies in the region and is a key market for the group. CIMBT's importance is also evident in its contributions to the group - it made up 9%-10% of the parent's assets and profit before tax during 2018-2021. We believe CIMBT's cooperation with the parent creates meaningful synergies, and this will continue to reinforce the bank's strategic position within the group over the medium term.
Linkages with Parent: The ratings also consider CIMB Bank's 94.8% stake in CIMBT and its close linkage with and control of the subsidiary, including appointment of CIMBT's key board members and top management. The full name- and brand-sharing, and CIMBT's long association with the group also imply huge reputational risks to the group from any failure at CIMBT. CIMBT's strategy and risk management framework are aligned with that of the parent. The subsidiary also receives ordinary support in terms of operational integration, expertise and infrastructure sharing, and funding support when needed.
Part of Regional Footprint: CIMBT was acquired by Malaysia-based CIMB Bank Berhad in 2008 as part of the parent's ASEAN expansion strategy, and the bank's linkages with the group have grown over time. CIMBT has synergies with the group in areas related to corporate banking, such as for cross-border wholesale banking referrals. The bank's fee-based business, such as in corporate bond underwriting, also benefits from group expertise.
Ordinary Support in Funding: The bank's loan-to-deposit ratio (LDR) decreased to 106% by end June 2022 from 119% at end-2021, reflecting the bank's efforts to increase deposits. CIMBT, like other small foreign-owned banks in Thailand, does not have a large local deposit franchise, and the LDR is much higher than the sector average of 94%. Nevertheless, we view that funding risks are mitigated by its position within the CIMB group, which helps facilitate access to inter-bank lines as well as intra-group limits.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
There could be downside to CIMBT's National Long-Term Rating if the parent's ability to support the subsidiary, as reflected in CIMB's standalone credit profile, were to deteriorate.
There could also be rating downside if the parent's propensity to provide extraordinary support to CIMBT were to decline. For example, this could be evident from a significant weakening in linkages, such as a reduction in shareholding to below 75% with the presence of a significant minority shareholder, or if there were signs of a declining commitment by the parent to provide financial and operational support to the Thai subsidiary.
Any negative rating action would also take into account CIMBT's support-driven credit profile relative to other entities rated on the Thai national rating scale.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An improvement in the parent's standalone credit profile could reflect a greater ability to provide extraordinary support to CIMBT, and could have a positive effect on CIMBT's ratings, although any assessment would also have to take into account CIMBT's credit profile relative to Thai national rating peers.
There could also be positive rating action if Fitch believes that CIMBT plays a significantly more important role within the group. This could come about from our assessment of sound long-term prospects for CIMBT to continue to support the group's strategic objectives in Thailand, such as a sustained and material increase in CIMBT's contribution to the parent bank and the group. This could be evident in an increase in CIMBT's contribution to group profit to above 20%, combined with an assessment that the group views Thailand as a key and integral market.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The rating on the senior MTN programme is equalised with CIMBT's National Long-Term and Short-Term Ratings, as it represents senior and unsecured obligations of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating on CIMBT's senior MTN programme will be downgraded if its National Long-Term and Short-Term Rating ratings are downgraded.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of CIMBT's National Long-Term Rating would lead to an upgrade of the MTN programme. However, the National Short-Term Rating on the MTN programme is at the highest point of the scale; hence there is no upside.
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
CIMBT's national ratings are linked to the standalone profile of CIMB Bank.
Additional information is available on www.fitchratings.com