TRIS Rating Co., Ltd. has affirmed the company rating of Mega International Commercial Bank PLC (Mega ICBC) at “A+”. The outlook remains “stable”. The company rating is enhanced from Mega ICBC’s stand-alone rating to reflect its status as a core strategic subsidiary of 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, 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” rating 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 International Commercial Bank in Taiwan (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. The bank also leverages on its parent bank’s brand name. The bank’s customer base partly stems from the strong relationship between its parent bank 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 2011, 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 “stable” outlooks. 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 2011, the bank’s total assets were Bt17,703 million, which was the smallest size compared with all 14 Thai commercial banks and a retail bank, with a market share of only 0.13%. 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.
Mega ICBC’s net income for 2011 decreased significantly from 2010 although its operating performance improved. The decline in profitability was due mainly to the provisioning expenses for doubtful accounts of Bt195 million. The bank reported net profit of Bt49 million in 2011, down from Bt172 million in 2010. Returns on average assets and on average equity continuously declined to 0.29% and 0.98%, respectively, in 2011, down from 1.12% and 3.46% in 2010.
On the funding size, Mega ICBC was able to diversify sources of funding during 2007-2011. As of December 2011, 35% of total funding was from deposits, 11% from short-term bills of exchange, 25% from interbank and money markets, and 29% from equity. Deposit base was not well diversified and concentrated on large-sized Taiwanese corporations operated in Thailand. However, the bank gets strong financial support from its parent bank in Taiwan, which helps mitigate the liquidity risk and enhances financial flexibility.
Mega ICBC’s classified loans with more than three months overdue have sustained at Bt313 million in 2010 and 2011, and the percentage to total loans was 2.18% in 2011, slightly down from 2.34% as of December 2010. The ratio was lower than the average ratio of around 3% for all 14 Thai commercial 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 43% 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 2011, the bank’s capital adequacy ratio was 30.12%, down from 31.85% in 2010. The ratio is expected to decline slightly when Mega ICBC expands its business as planned, said TRIS Rating. — End
Company Rating: Affirmed at A+ Rating Outlook: Stable
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