TRIS Rating Co., Ltd. has affirmed the company rating of Mega International Commercial Bank PLC (Mega ICBC) at “A+” with “stable” outlook. The company rating is enhanced from Mega ICBC’s stand-alone rating as it is a core strategic subsidiary of Mega International Commercial Bank, Taiwan (Mega ICBC, Taiwan), in penetrating into the Asia Pacific region. Mega ICBC’s stand-alone rating is based on its strong market position in lending to Taiwanese investors as the only Taiwanese bank in Thailand, its strong capitalization, and continued improvement in risk management and internal control systems. The rating is constrained by Mega ICBC’s limited franchise value and network in Thailand, compared with other well-established local commercial banks. The rating takes into consideration the limited prospects of Taiwanese investment in Thailand, a concern on asset quality deterioration, concentration risk on large-sized customer lending, and uncertain impacts from domestic political situation. These factors might limit Mega ICBC’s loan portfolio growth and profitability in the medium term.
The “stable” outlook reflects the likelihood that Mega ICBC will deliver a medium-term financial performance as expected by leveraging its parent’s franchise to enhance its business expansion in the Thai commercial banking industry. The outlook is also based on the expectation that Mega ICBC will maintain its role as an important strategic subsidiary of its parent bank, which will benefit Mega ICBC in terms of expanded scope of business and financial flexibility and liquidity. Strong support from its parent and its strong capital fund are expected to help mitigate future downside risks from uncertain economic and financial situations, both locally and globally.
TRIS Rating reported that Mega ICBC, which was granted a foreign bank subsidiary license by the Ministry of Finance (MOF) of Thailand in August 2005, is a wholly-owned subsidiary of Mega ICBC, Taiwan. Before being granted the license, the bank had operated as a full foreign bank branch in Bangkok since 1947. Mega ICBC is highly integrated to its parent’s operational system, business model and strategies, and also leverages on its parent bank’s brand name. The bank’s customer base partly stems from the strong relationship between its parent and Taiwanese corporations that have invested or that have subsidiaries in Thailand. Back-up credit lines from its parent bank provide Mega ICBC with sufficient liquidity and financial flexibility. As of December 2009, Mega ICBC, Taiwan, was rated by Moody’s Investors Service (Moody’s) at “A1” and by Standard and Poor’s (S&P) at “A” with a “stable” outlook. The ratings were supported by its leading position in foreign exchange and trade finance markets, as well as good asset quality, high liquidity and implicit support from the Taiwanese government.
TRIS Rating said, Mega ICBC has limited franchise value compared with large local commercial banks. The bank has a small-sized banking network and limited banking services. As
a foreign bank subsidiary, Mega ICBC is limited by the regulation to have no more than four branches. As of December 2010, the bank’s total assets were Bt16,377 million, which was the smallest size among all 11 Thai universal banks and two retail banks, with a market share of only 0.14%. The bank serves a niche market of Taiwanese-based and Taiwanese-related business clients operating in Thailand. Currently, the bank’s lending to Taiwanese clients in Thailand accounted for about 80% of its total loan portfolio.
The bank’s profitability for 2010 slightly decreased from 2009, because of a decline in interest income following lower lending rates, while operating expenses increased. The bank reported net profit of Bt172 million in 2010, lower than Bt178 million in 2009. Returns on average assets and on average equity were continuously declined to 1.12% and 3.46%, respectively, in 2010, further down from 1.22% and 3.72% in 2009 and 2.14% and 6.34% in 2008.
On the funding size, Mega ICBC was able to diversify sources of funding during 2007-2010. As of December 2010, 35% of total funding was from deposits, 14% from short-term bills of exchange, 20% from interbank and money markets, and 31% from equity. Deposit base was not well diversified and concentrated on large-sized Taiwanese corporates operated in Thailand. However, the bank gets strong financial support from its parent bank, which will help mitigate the liquidity risk and enhance financial flexibility. Mega ICBC’s asset quality improved in 2010, after deteriorating in the second half of 2009 as a result of weaker financial performance of its clients following a drop in exports of some manufacturing products. As of December 2010, the bank’s ratio of classified loans with more than three months overdue to total loans was 2.34%, down from 3.17% as of December 2009. However, the ratio was still far lower than the average ratio of 6% for all 11 Thai universal banks. In the near to medium term, asset quality deterioration is still a major concern due to uncertainty of deteriorating credit profile of large corporate customers in industrial manufacturing sector. In addition, the bank has been exposed to high credit risk concentration on top-20 large customers, which accounted for 44% of total loans. However, the bank’s larger capital base is expected to provide sufficient cushion to absorb losses from future downside risks. As of December 2010, its capital adequacy ratio was 31.85%. The ratio is expected to decline slightly when Mega ICBC expands its business as planned, said TRIS Rating. -- End Mega International Commercial Bank PLC (Mega ICBC) Company Rating: Affirmed at A+ Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.