TRIS Rating Co., Ltd. has affirmed the company rating of Kiatnakin Bank PLC (KK) and the ratings of KK’s senior debentures at “A-”. At the same time, TRIS Rating has revised the rating outlook of KK to “positive” from “stable”. The ratings reflect KK’s improvement in business and financial profile, experienced management team, acceptable risk management and practices, good track record of improving asset quality, and strong capital fund. Although KK has been more diversified in retail funding base, the ratings are constrained by its limited franchise value and unforeseen risks impacted by the Deposits Protection Act (DPA) implementation, which will be effective on 11 August 2011. In addition, uncertainty of economic and political environments and intense competition in both banking and securities businesses might limit KK’s business growth and profitability in the future.
The “positive” outlook reflects the expectation that KK will be able to sustain business growth and profitability in the medium term. The outlook also reflects the bank’s ability to control asset quality and maintain sufficient capital funds to absorb downside risks due to uncertainty of economic and financial environment in the future. Unforeseen risks of unstable retail deposit base due to the DPA implementation is still a major concern in 2011-2012. The ratings would be reviewed after TRIS Rating evaluates the impact of DPA implementation in August 2011. An upgrade would be taken into consideration KK’s ability to sustain its strengths and to secure its stable funding at a reasonable price after the DPA implementation.
TRIS Rating reported that KK was ranked 9th with a 1.5% market share in terms of assets, 1.6% in loans, and 1.2% in deposits as of December 2010. KK’s core businesses in hire purchase, residential project lending and distressed asset management are well managed with high expertise and under controllable asset quality. As KK has the strategy to focus more on expanding good-quality assets, the bank has imposed more stringent credit policy and underwriting criteria. As a result, the loan portfolio in 2009 grew slightly by 8% from Bt81,360 million in 2008 to Bt87,638 million in 2009. Supported by a two digit growth of domestic vehicle sales and the economic growth in 2010, KK’s loan portfolio expanded by 24% to Bt108,313 million. Of the total, 71% was hire purchase lending, 29% was the residential project loans and others. As of December 2010, auto hire purchase lending rose by 28% to Bt77,020 million, compared with Bt60,119 million as of December 2009. At the same time, loans for real estate and construction increased by almost 8%, from Bt19,160 million to Bt20,607 million.
Due mainly to attempts to control asset quality, TRIS Rating said, KK’s non- performing loans (NPL) has consistently reduced since 2007. The ratio of classified loans (sub-standard, doubtful and doubtful loss) to total loans improved tremendously from 14.5% in 2006 to 4.6% in 2010, which was better than the industry average of 4.7% for the 11 universal banks. However, classified loans with more than three months pass due from loans for real estate and construction sectors was 16% of total loans for these sectors, while the industry average NPL for these sectors was 10%. KK’s non-performing asset (NPA) (classified loans with more than three months pass due, and the outstanding amount of troubled debt being restructured and foreclosed property) was 8.96% of total assets, which approached the average of 8.57% for the 11 Thai universal banks. KK’s ratio of allowance for doubtful accounts to NPLs was 109%, higher than the industry average of 91% for the 11 universal banks in 2010. Although KK extends loans to sub-prime residential developers which are high credit risk assets, the bank maintained adequate cushion of capital and allowances for doubtful accounts to absorb risks from a certain rise in NPAs. The ratio of NPA to capital fund plus allowance for doubtful accounts was 0.55 times, which was better than an average of 0.61 times for the 11 universal banks.
KK was able to generate better income and sustain high yield from its core businesses, while succeeding in controlling of its operating cost. In 2010, KK reported net profits of Bt2,840 million, up 27% from Bt2,229 million in 2009. The ratio of operating expenses to total income increased slightly to 35% from 33% in 2009, far lower than the industry average of 46% for the 11 universal banks. KK’s return on average assets also rose to 2.11% in 2010 from 1.84% in 2009, while the return on average equity also increased to 14.62% from 12.69%.
On the funding side, KK’s strategy to increase numbers of retail accounts with a smaller amount of deposits was reflected by an increase in a portion of savings deposits to 6% of total deposits as of December 2010 from 0.7% of total deposits as of December 2008. KK had a strong capital fund, as shown by its BIS ratio of 15.18% at the end of 2010. As KK engages in high risk-high return lending, especially residential project loans, maintaining strong capital fund and allowance for doubtful accounts is crucial to absorb unexpected losses from future downside risks, said TRIS Rating. -- End
Company Rating: Affirmed at A- Issue Ratings: KK115A: Bt1,289 million senior debentures due 2011 Affirmed at A- KK119A: Bt1,450 million senior debentures due 2011 Affirmed at A- KK127A: Bt2,493 million senior debentures due 2012 Affirmed at A- KK12OA: Bt2,000 million senior debentures due 2012 Affirmed at A- Rating Outlook: Positive from Stable
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