Fitch Ratings has affirmed the National Long-Term Rating of Sumitomo Mitsui Trust Bank (Thai) Public Company Limited (SMTBT) at 'AAA(tha)'. The Outlook is Stable. Fitch has also affirmed the bank's National Short-Term Rating at 'F1+(tha)'.
KEY RATING DRIVERS
Shareholder Support Drives Ratings: SMTBT's ratings reflect Fitch's view of a high probability of extraordinary support from its Japan-based parent, Sumitomo Mitsui Trust Bank, Limited (SMTB; A-/Stable), if needed. SMTB is the fourth-largest bank in Japan with a strong domestic franchise in the trust and custody business.
SMTBT's national ratings also reflect Fitch's view of the bank's support-driven profile relative to that of other entities within the Thai national rating universe. The bank's 'AAA(tha)' rating reflects the lowest level of default risk compared with other issuers rated on the Thai national scale, based on the parent's strong ability and propensity to provide support.
Strategic Linkages: Fitch believes that SMTBT - despite its small size relative to the parent - plays a key role in supporting the group's overseas aspirations in a strategically important market. SMTBT serves the group's clients in Thailand, which is the second-largest economy in south-east Asia and a key investment destination for Japanese companies.
The Thai subsidiary is wholly owned by SMTB, with clear branding linkages and high levels of management control. SMTBT is well-integrated with the parent, including its risk management processes and operating systems. Fitch also believes the bank's medium-term strategic planning is closely co-ordinated with that of the group.
Building Scale: SMTBT commenced operations in 2015, with a business model concentrating on serving Japanese corporate customers. The onset of the Covid-19 pandemic in 2020 led to significant economic disruptions in Thailand. However, business activity has recently improved and the bank reported loan growth of 42% in its financial year ended March 2022 on pent-up demand. Fitch expects the bank to continue to build its scale in the local market, although growth will likely slow.
Moderate Profitability Continues: SMTBT has maintained profitability despite the challenging operating environment, with operating profit to risk-weighted assets improving slightly to 0.7% as of March 2022. Near-term performance upside is limited due to Thailand's slow economic recovery and the bank's low net interest margins. Nevertheless, Fitch believes SMTBT's strong client relationships and group support will enable it to continue to serve its niche segment in Thailand.
Funding Benefits from Group Ties: SMTBT's loan-to-customer deposit ratio is very high at 266%, but Fitch believes its funding risks are well-mitigated through ongoing ordinary support. The bank benefits from intra-group facilities, and we expect group relationships to also facilitate inter-bank access as required.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A decline in Fitch's assumptions on shareholder support could lead to negative rating action for SMTBT. For example, a downgrade of SMTB's Long-Term IDR could indicate reduced ability to support the Thai subsidiary, leading to negative rating action on SMTBT's ratings. Any rating action would also consider the bank's support-driven credit profile relative to that of other entities on the Thai national rating scale.
A reduced propensity for support could also lead to a downgrade of SMTBT's ratings. This may be indicated by a large decline in linkages, such as a reduction in shareholding to below 75% along with reduced levels of management control, integration and strategic co-ordination. However, Fitch does not expect any changes in support propensity in the near-to-medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no upside to SMTBT's ratings, which are at the top end of the Thai national rating scale.
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
SMTBT's ratings are linked to the Long-Term IDR of SMTB.
Additional information is available on www.fitchratings.com