TRIS Rating Co., Ltd. has affirmed the company rating of TMB Bank PLC (TMB) at “A+” and has affirmed the ratings of TMB’s subordinated debentures and hybrid Tier-1 securities at “A” and “BBB+”, respectively. The outlook remains “stable”. The ratings reflect TMB’s capable management team and ongoing support from its major shareholders. As TMB’s strategic partner, ING Bank N.V. is active in the management of TMB and has been strengthening its financial and business profiles. TMB has leveraged ING Bank’s know-how in risk management and strengths in retail banking, insurance and asset management services, which are the keys to future growth. In addition, TMB also has a strong capital cushion, comprising its capital funds and allowances for doubtful accounts. The cushion can absorb unexpected losses from future downside risks associated with adverse changes in the operating environment. Nevertheless, these strengths are counter-balanced by a high level of legacy non-performing loans (NPL), relatively weak profitability, a more intense competitive environment in the banking industry, and uncertainty in the domestic political and global financial situations. These factors might limit the bank’s business growth and profitability.
The “stable” outlook reflects the expectation of further improvement in TMB’s asset quality, financial profile and operating efficiency in the medium term. Support from ING Bank is expected to continuously enhance TMB’s risk management system and practices, franchise value, and competitive edge. The support from ING Bank is also expected to help TMB generate steady earnings in the medium term. The outlook is also based on the expectation that the implementation of the Deposits Protection Agency Act (DPA) in August 2011 will not have a severe and immediate negative impact on the banking industry.
TRIS Rating reported that TMB’s major shareholders are ING Bank (including ING Support Holding) and the Ministry of Finance (MOF), which held 30.1% and 26.1% of the shares as of March 2011, respectively. All the key management personnel have been on board since March 2009. The management team is well-recognized in the banking industry. All have extensive experience as senior managers at other large-sized commercial banks. TMB succeeded in laying the foundation for its future success during 2008-2009, and has been implementing the second phase of the customer-centric transformation in 2010 and 2011. The second phase focuses on differentiation and quality growth, including service and operational excellence, product expansion, and channel and brand enhancement. The management team continues to face challenges to enhance operating efficiency, improve asset quality, grow the base of profitable assets, and secure stable sources of funding. These challenges loom amid the uncertainty surrounding the future operating environment.
TRIS Rating said, at the end of March 2011, TMB was the seventh-largest Thai commercial bank in terms of total assets with 5.5% market share in loans and 6.5% share in deposits. On a consolidated basis, TMB’s total assets were Bt638.6 billion, up by 8.4% from Bt589.2 billion as of December 2010. TMB’s financial profile has improved, as illustrated by the growth in net income to Bt3,202 million in 2010, up 64.6% from Bt1,945 million in 2009. The improvement in financial performance was mainly driven by an increase in fee-based income as well as a decrease in the provisions established for possible bad debts. TMB’s performance improvement continued in the first three months of 2011, as net income was Bt1,096 million, up by 39% compared with Bt789 million for the same period of the previous year. The rise was driven by increases in both interest and non-interest income and a decrease in the provisions for bad debts. In 2010, the return on average assets (ROAA) and the return on average equity (ROAE) were 0.57% and 6.63%, respectively, up from 0.34% and 4.24% in 2009. These ratios continued to improve during the first three months of 2011, compared with the same period last year. ROAA climbed to 0.18% (non-annualized) while ROAE was 2.2% (non-annualized), up from 0.14% and 1.67%, respectively, in 2010.
Following TMB’s strategic plan, the bank has strived to improve asset quality by selling, recovering, and writing off its NPLs. In 2010, TMB sold NPLs worth Bt9.4 billion to Bangkok Commercial Asset Management Co., Ltd. (BAM). At the end of December 2010, on a consolidated basis, TMB’s NPLs was Bt36 billion (or 9.91% of total loans), declining from Bt54.1 billion (or 14.66% of total loans) as of December 2009. TMB’s ratio of NPLs to total loans, however, remained far above the industry average of 4.79% for 11 Thai universal banks in TRIS Rating’s database (excluding United Overseas Bank (Thai) PLC
and Standard Chartered Bank (Thai) PLC). In the first quarter of 2011, TMB’s NPLs continued to decline, falling to Bt34.7 billion (or 9.15% of total loans) at the end of March 2011 as the bank resolved many of its NPLs. At the same time, the bank’s ratio of non-performing assets (NPA, the sum of classified loans more than three months overdue, plus restructured loans, and foreclosed property) to total assets was 6.86% as of March 2011, continuing a steady fall from 7.84% and 12.76% in 2010 and 2009, respectively. TMB had a strong cushion of capital funds and allowances for doubtful accounts to offset its bad debts. At the end of March 2011, the bank’s NPAs were 0.51 times its capital funds plus the allowance for doubtful accounts. This ratio improved from 0.73 times in 2009 and is also lower than the industry average of 0.58 times.
In terms of funding and liquidity, TRIS Rating said, TMB succeeded in restructuring its funding base so that its funding base is now more diversified with cheaper and more stable funding sources. The bank’s proportion of current and savings deposits (CASA) as a percentage of total deposits has increased significantly, rising from 39% in 2008 to 50% in 2009, and to 49% at the end of March 2011. TMB’s CASA matches the average level of seven large commercial banks.
In terms of the bank’s capital base, TMB has a strong base to support its business expansion and to absorb unexpected losses from risks associated with adverse changes in the operating environment during the medium term. At the end of March 2011, the bank’s capital adequacy ratio slightly decreased to 16.42%, compared with 16.59% in 2010 and 17.13% in 2009. The fall was due to an increase in credit risk-weighted assets, reflecting a larger loan portfolio. Nevertheless, the ratio remained above the industry average of 14.96% and the minimum requirement of 8.5% set by the Bank of Thailand (BOT), said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Ratings: TMB19NA: Bt5,300 million subordinated debentures due 2019 Affirmed at A TMB204A: Bt8,000 million subordinated debentures due 2020 Affirmed at A TMB09PA: Bt4,000 million hybrid Tier-1 securities due 2109 Affirmed at BBB+ Rating Outlook: Stable
Note: TMB owns 15.30% of TRIS Rating’s parent company, TRIS Corporation Ltd. (TRIS), which holds a 99.99% stake in TRIS Rating. 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.