TRIS Rating Co., Ltd. has assigned the “A” rating to the proposed issue of up to
Bt10,000 million in subordinated debentures of Thanachart Bank PLC (TBANK). At the same
time, TRIS Rating has affirmed the company rating of TBANK at “A+” and has also affirmed the
ratings of TBANK’s current subordinated debentures and hybrid debt capital securities at “A”
and “A-”, respectively. The outlook remains “positive”. The ratings reflect TBANK’s
stronger business profile following the acquisition of Siam City Bank PLC (SCIB), a medium-
sized bank with a large and more diversified client base. The ratings are enhanced by the
capability and experience of TBANK’s management team in its core business, hire-purchase
lending, plus an enlarged network and the appropriate business strategies to strengthen the
synergies within Thanachart Group. The ratings are also enhanced by the strong credit
profile of TBANK’s Canadian strategic partner, Bank of Nova Scotia (BNS), which holds a 49%
stake in TBANK. However, these strengths are constrained by the bank’s higher level of
consolidated legacy non-performing assets (NPA), transition risk when merging the operations
of TBANK and SCIB, and a more intense competitive environment in the banking industry.
Uncertainties in the domestic political and global financial arenas might limit the group’s
expansion plans and profitability during the next few years.
The “A-” ratings for TBANK’s hybrid debt capital securities (TBANK197A and
TBANK247A) reflect both the subordination and payment deferral risks of the issues. The
hybrid debt capital securities are due in 2019 and 2024, cumulative, junior subordinated,
and unsecured. The securities are also callable by the bank any time before the maturity
dates as long as the call date is at least five years after issuance and as long as the bank
has received approval from the Bank of Thailand (BOT). The holders of the hybrid debt
capital securities will be subordinated to depositors and holders of the senior debts and
subordinated debts of the bank. The bank will not be obliged to make any payment in the
event that the bank posts a net loss for the same six-month period during which any interest
payment would be due or payable and the bank is unable to pay dividend during such period or
during the next six months, but the coupon payments will be cumulative.
The “positive” outlook recognizes TBANK’s designated role as the core bank of the
Thanachart Group. TBANK is expected to capitalize on group synergies to strengthen its
market position in the banking industry, and to control the asset quality deterioration as
well as the transition risk during the merger integration period. Growth in interest and non-
interest income as well as cost synergies across the group are expected to help offset rises
in operating expenses as the merger between TBANK and SCIB is fully realized.
TRIS Rating reported that as a part of TBANK’s growth strategy, the bank acquired
SCIB by purchasing shares of SCIB from the Financial Institutions Development Fund (FIDF)
and other shareholders during the second quarter of 2010. TBANK now owns 99.95% of the
shares of SCIB. At the end of December 2010, TBANK was the fifth largest Thai commercial
bank (up from eighth in 2008) in terms of total assets with 9.1% market share in loans and
8.1% share in deposits. On a consolidated basis, TBANK’s total assets were Bt872.7 billion,
up by 101.6% from Bt433 billion at the end of December 2009. The acquisition has
strengthened TBANK’s competitive edge in the corporate banking segment and diversified its
loan portfolio across other sectors. The diversification has yielded a better loan mix and
has reduced the concentration of hire purchase loans in the loan portfolio.
At the end of 2010, TBANK’s loan portfolio was Bt607,775 million, up by 113.2% from
Bt285,100 million at the end of 2009. TBANK is the largest auto loan provider in Thailand
with about 27% market share and Bt239,943 million in loans (including the hire-purchase
portfolio of Thanachart Capital PLC -- TCAP). TBANK’s corporate loans accounted for 39% of
total loans, up from 21% at the end of 2009, while its retail loans accounted for 61% of
total loans, down from 79% at the end of 2009. The majority of TBANK’s loan portfolio
comprises retail loans, with 39% in hire-purchase loans and 13% in housing loans. Corporate
loans are also a significant part of the loan portfolio with 14% of loans outstanding lent
to the manufacturing and commerce sector and 11% to the public utilities and services sector.
On the liability side, TBANK benefited from acquiring the large deposit base and the physical branch network of SCIB. The acquisition will further support and enhance the extent of cross-selling across the many related companies in Thanachart Group that offer financial services. The acquisition is also expected to strengthen TBANK’s franchise value in the medium- to long-term. However, TBANK’s success in utilizing the benefits of group- wide synergy has yet to be proved.
TBANK’s financial profile has continuously improved. Net income was Bt8,777 million in 2010, up by 116.4% from Bt4,056 million in 2009. The improvement in financial performance was driven by increases in both interest and non-interest income. In addition, return on average assets and return on average equity were 1.34% and 17.51%, respectively, up from 1% and 16.48% in 2009.
In terms of asset quality after the acquisition of SCIB, TBANK has been constrained by an increase in non-performing loans (NPLs) and NPA, mostly from the commercial loan portfolio of SCIB. At the end of December 2010, on a consolidated basis, TBANK’s ratio of NPLs to total loans was 6.06%, up from 3.04% as of December 2009. This ratio was above the industry average of 4.72% for 11 Thai universal banks. TBANK’s NPAs (the sum of classified loans more than three months overdue, plus the outstanding amount of troubled debt being restructured, and foreclosed property) as of December 2010 were 0.61 times capital funds plus the allowance for doubtful accounts, up from 0.31 times at the end of December 2009. This ratio has risen close to the industry average of 0.61 times for 11 Thai universal banks. The management team’s ability to control asset quality during the post- merger consolidation period has yet to be proved.
TRIS Rating said, after the acquisition, TBANK’s liquidity improved because the bank now has access to retail deposits. Furthermore, TBANK’s capital base was stronger as a result of a capital injection of Bt35,790 million by TCAP and BNS in April 2010. The equity to total assets ratio at the end of 2010 climbed to 8.3%, from 6.44% at the end of 2009. However, the ratio remained below the industry average of 9.78% for 11 Thai universal banks. At the end of 2010, TBANK reported a total capital ratio of 14.75%, improving from 14.1% at the end of 2009. This ratio is expected to fall slightly, as the goodwill resulting from the acquisition of SCIB has to be deducted from TBANK’s Tier-1 capital once the entire business of SCIB is transferred TBANK in 2011. However, TBANK’s total capital ratio remained far above the minimum requirement of 8.5% set by BOT.
Currently, TBANK is proceeding with the merger integration plan. The voluntary delisting of SCIB’s shares from the Stock Exchange of Thailand was finished in 2010. SCIB will continue to operate as a separate commercial bank until the entire business transfer process has been completed. SCIB has committed to return its banking license to the BOT by 31 December 2011. Going forward, TBANK’s ratings and outlook will be influenced by the challenges facing the quality of its assets in relation to the levels of capital and earnings, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Ratings: TBANK155A: Bt5,000 million subordinated debentures due 2015 Affirmed at A TBANK194A: Bt2,000 million subordinated debentures due 2019 Affirmed at A TBANK197A: Bt3,500 million hybrid debt capital securities due 2019 Affirmed at A- TBANK204A: Bt6,000 million subordinated debentures due 2020 Affirmed at A TBANK247A: Bt1,500 million hybrid debt capital securities due 2024 Affirmed at A- Up to Bt10,000 million subordinated debentures due 2019 A Rating Outlook: Positive
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