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 the bank’s capable management team and ongoing support from its major shareholders, ING Bank N.V. (ING Bank). The ratings also take into account the bank’s high level of liquidity and its ample cushion of capital funds. Nonetheless, these strengths are counter-balanced by a high level of non-performing loans (NPLs), relatively weak profitability, more intense competition in the banking industry, as well as uncertainty in the domestic political and global financial situations. These factors might limit the bank’s growth and profitability. The “stable” outlook reflects the expectation of further improvement in TMB’s asset quality, financial profile, and operating efficiency. 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 drop in the amount of deposit insurance coverage, from Bt50 million to Bt1 million in August 2012, will not have a severe and immediate negative impact on the banking industry.
The “BBB+” rating for TMB’s Bt4,000 million in hybrid Tier 1 securities (TMB09PA) reflects both the subordination level and payment deferral risks of the issue. The hybrid Tier 1 securities are perpetual, noncumulative, subordinated, unsecured, and callable by the bank after five years and every six months thereafter. The holders of hybrid Tier 1 securities will be subordinated to depositors, subordinated to holders of the senior debts, and subordinated to the subordinated debts of the bank. The bank will not be obliged to make any payment on the hybrid Tier 1 securities in the event that the bank posts a net loss for the latest accounting period preceding an interest payment due date. Such non-payment will not constitute a default by the bank.
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 2012, respectively. As a strategic partner, ING Bank is active in the management of TMB and has helped TMB strengthen its financial and business profiles. TMB has leveraged ING Bank’s know-how in risk management and strengths in retail banking services, which are the keys to future growth. Since 2008, TMB has implemented a transformation program to transform TMB into a customer-centric and high-performance organization for its future success. However, the management team continues to face challenges, such as enhancing operating efficiency, growing the base of profitable assets, improving asset quality, and securing stable sources of funding. These challenges loom amid the uncertainty surrounding the future operating environment.
TRIS Rating said, at the end of March 2012, TMB was the seventh-largest Thai commercial bank in terms of total assets, with 4.9% market share in loans and 5.9% share in deposits. On a consolidated basis, TMB’s total assets were Bt713.4 billion, up by 11.7% from Bt638.6 billion as of March 2011. In 2011, TMB’s financial profile improved further. Net profit rose to Bt4,009 million in 2011, up by 25.2% from Bt3,202 million in 2010. Return on average assets (ROAA) and return on average equity (ROAE) were 0.61% and 7.85%, respectively, up from 0.57% and 6.63% in 2010. The improvements in the return measures were primarily driven by increasing interest income and fee-based income. TMB’s financial performance for the first quarter of 2012, however, slightly dropped, mainly caused by more provisions for loan losses. For the first three months of 2012, the bank reported a net profit of Bt1,031 million, down by 5.9% year-on-year (y-o-y). Non-annualized ROAA and ROAE were 0.14% and 1.95%, respectively, down from 0.18% and 2.20% for the same period last year. Despite the fact that TMB’s financial status improved over 2008-2011, its ability to maintain its financial stability remains to be proved.
In accordance with its strategic plan, TMB has strived to improve asset quality by recovering, restructuring, selling, and writing off its NPLs. In 2011, TMB’s consolidated NPLs continued to decline, down from Bt36.0 billion in 2010 to Bt29.8 billion in 2011. The ratio of NPLs to total loans dropped to 7.49% in 2011 from 9.91% in 2010. At the same time, the bank’s ratio of non-performing assets (NPAs, the sum of classified loans more than three months overdue, plus restructured loans, and foreclosed property) to total assets was 5.07% in 2011, falling from 7.84% in 2010. Nevertheless, at the end of March 2012, the bank’s NPLs slightly increased to Bt30.5 billion (or 7.59% of total loans). The bank’s NPL ratio remained the highest among 11 Thai universal banks (excluding four non-listed Thai banks), and above the industry average of 3.59% as of March 2012. The management’s ability to control asset quality has to be closely monitored.
In terms of funding and liquidity, TMB succeeded in restructuring its funding base to be more diversified, with cheaper and more stable funding sources. The bank’s proportion of current and savings deposits (CASA) as a percentage of adjusted deposits (deposits plus bills of exchange (B/Es)) has increased, rising from 43% in 2010 to 59% at the end of March 2012. TMB has also maintained a high level of liquidity, as illustrated by the ratio of loans to adjusted deposits of 83.3% as of March 2012. This ratio is far lower than the industry average of 95.5%.
TMB had a strong cushion of capital funds plus allowances for doubtful accounts to absorb unexpected losses from future downside risks associated with adverse changes in the operating environment. At the end of March 2012, the bank’s NPAs were 0.40 times the sum of its regulatory capital plus the allowance for doubtful accounts. This ratio improved from 0.53 times in 2010 and was also lower than the industry average of 0.50 times. TMB has an adequate capital base to support its business expansion efforts during the medium term. As of March 2012, TMB reported a Tier 1 ratio and a total capital ratio (BIS ratio) of 11.19% and 16.24%, respectively, slightly down from 11.33% and 16.59% at the end of 2010. The fall was mainly due to a rise in the bank’s credit risk-weighted assets, tracking the loan portfolio expansion. These ratios, however, remained higher than the industry average of 10.39% and 14.89%, respectively, and far above the minimum requirement of the Bank of Thailand (BOT) at 4.25% and 8.50%, respectively, 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
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2012, 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.