TRIS Rating Co., Ltd. has affirmed the company rating of Bank of Ayudhya PLC (BAY) at “AA-” and has affirmed the rating of BAY’s subordinated debentures at “A+” with “stable” outlook. The ratings reflect the continuing improvement of BAY's market position in its core businesses, improved financial performance and asset quality, and a growing franchise value. The ratings are also enhanced by the continuous support from GE Capital International Holdings Corporation (GECIH), the largest shareholder which owns a 33% stake in BAY. The ratings, however, are constrained by a high level of legacy non-performing assets (NPA), a more intense competitive environment in the banking industry, and uncertainty in the domestic political situation and global financial arena. These forces might limit the bank’s business growth and profitability.
The “stable” outlook reflects the expectation that BAY will be able to sustain its business and financial performance and further improve its asset quality in the medium term. In addition, BAY is expected to continue to gain benefits from synergies with GE Group in terms of growing a profitable loan portfolio and increasing its market share in retail banking. These actions will strengthen the bank’s franchise value in the long 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 as of March 2010, BAY was the fifth-largest Thai commercial bank in terms of total assets with 8.6% market share in assets, 9.5% share in loans, and 8.5% share in deposits. BAY’s total consolidated assets were Bt870.4 billion, up by 6% from Bt821.6 billion. The strategy to leverage the GE Group’s expertise in retail banking has helped BAY achieve both organic growth and growth through acquisitions during 2008-2010. The acquisitions have strengthened BAY’s market position in the retail banking and credit card businesses, and diversified its retail loan portfolio by adding more high-yield loans (auto hire-purchase, credit cards and personal loans). As of March 2011, BAY’s retail banking loans comprised 44% of total loans, up from 22% in 2007, while the portions of corporate loans and SME loans to total loans were reduced to 28% and 28%, respectively, from 34% and 44%. BAY is now the largest credit card issuer, the second-largest auto loan provider, and the largest provider of loans to purchase used car in Thailand.
TRIS Rating said, BAY has benefited from the know-how and operating systems transfers after forging the partnership with GE Group. BAY succeeded in building the foundation for its future success during 2007-2009. The bank has been implementing a new phase, optimization and growth acceleration, during 2010-2012, focusing on the full integration of the BAY Group and the enhancement of its cross-selling capabilities. These achievements are expected to strengthen the bank’s franchise value in the long term. The management team continues to focus on enhancing operating efficiency, improving asset quality, and growing its base of stable profitable assets amid uncertain operating environment and the uncertainty surrounding future industry regulations.
BAY’s financial profile has further improved in 2010 and the first quarter of 2011. Net profits were Bt8,793 million in 2010, up by 32% from Bt6,659 million in 2009. For the first quarter of 2011, BAY reported net profits of Bt2,808 million, or a 35.7% rise from the same period last year. The improvement was mainly due to the growth in the amounts of more profitable assets and cost reduction initiatives. Return on average assets (ROAA) and return on average equity (ROAE) were 1.07% and 9.17% in 2010, respectively, up from 0.87% and 7.44% in 2009. The ratios continued to improve in the first quarter of 2011, compared with the same period of the previous year. ROAA increased to 0.32% (non-annualized) while ROAE was 2.82% (non-annualized), up from 0.26% and 2.21%, respectively in 2010.
In terms of asset quality, TRIS Rating said, BAY has a strong risk management system in place to improve the asset quality. BAY has also succeeded in resolving its legacy non-performing loans (NPL) as reflected by a steady decline in the NPL balance. At the end of 2010, BAY’s NPL amount was Bt38.1 billion (or 5.86% of total loans), down from Bt52.1 billion (or 8.6% of total loans) in 2009, as the bank sold approximately Bt12.7 billion of its NPLs to third parties. BAY’s NPL ratio in 2010, however, remained higher than 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). The bank’s NPL ratio continued to improve in the first quarter of 2011, declining to Bt36.5 billion (or 5.52% of total loans) as of March 2011. At the same time, BAY’s NPAs (the sum of classified loans more than three months overdue, plus restructured loans and foreclosed property) continued to decrease over the past few years, as a result of its continued efforts to reduce NPAs. At the end of March 2011, the ratio of NPA to total assets was 9.4%, down steadily from 23.96% in 2007, but remained above the industry average of 7.52%. BAY has a sufficient cushion of capital funds and allowances for doubtful accounts to absorb any unexpected deterioration in asset quality. BAY’s NPAs were 0.58 times its capital funds plus the allowance for doubtful accounts as of March 2011. This ratio improved from 1.00 times in 2009 and is now in line with the industry average of 0.58 times.
In terms of funding, BAY has diversified its sources of funding to better match its asset and liability structure. As of March 2011, total funding was Bt823.7 billion, of which 70% was deposits, followed by borrowings from the public (including the issuance of debentures and bills of exchange) (14%), shareholders’ equity (12%) and borrowings from the interbank and money markets (4%). Of the balance of total deposits as of December 2010, current and savings deposits (CASA) accounted for 41%, up from 38% in 2009, while the rest was fixed-rate time deposits.
BAY has a solid base of capital funds to support its expansion and to absorb unexpected losses from risks associated with adverse changes in the operating environment during the medium term. The ratio of shareholders’ equity to total assets slightly declined from 11.87% as of December 2009 to 11.48% as of March 2011, due mainly to a rapid expansion in lending over the year. However, at 16.79%, BAY’s capital adequacy ratio as of March 2011 was the highest level in the industry, up from 14.15% in 2009 and 15.84% in 2010, and above the industry average of 14.96%, said TRIS Rating. -- End
Company Rating: Affirmed at AA- Issue Rating: BAY206A: Bt20,000 million subordinated debentures due 2020 Affirmed at A+ Rating Outlook: Stable
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