TRIS Rating has affirmed the company rating of Mega International Commercial Bank PLC (Mega ICBC), a wholly-owned subsidiary of Mega ICBC in Taiwan (Mega ICBC-Taiwan), at “A+”. The outlook remains “stable”. The company rating is enhanced from Mega ICBC’s stand-alone rating. The enhancement reflects Mega ICBC’s status as a core strategic subsidiary of Mega ICBC-Taiwan. Mega ICBC’s stand-alone rating is based on the financial strength it derives from a high level of its capital funds, the fact that it is the only Taiwanese bank in Thailand which means it has a competitive edge in lending to Taiwanese investors, an acceptable risk management system, and good quality assets. The rating also takes into consideration the business and financial support Mega ICBC receives from its parent bank. The rating, however, is constrained by the bank’s small market shares in loans and deposits, its relatively limited domestic distribution network, and concentration risks on loans and deposits. In addition, Mega ICBC’s future growth and profitability might be affected by the limited prospects of Taiwanese direct investment in Thailand and uncertainties in the worldwide economic environment. The “stable” rating outlook reflects the likelihood that Mega ICBC will be able to deliver the medium-term financial performance as expected. The outlook is also based on the anticipation that the bank will maintain its role as an important strategic subsidiary of its parent bank. This will benefit Mega ICBC in terms of an expansion of the scope of business and an enhancement of financial flexibility.
Mega ICBC had operated as a foreign bank branch in Bangkok since 1947, and upgraded its status to become a foreign bank subsidiary in 2005. Mega ICBC is highly integrated to its parent’s operational system, business model, and strategies. The bank has leveraged its parent bank’s strong franchise and brand name to enhance its expansion efforts in the Thai commercial banking industry. The bank’s customer base partly stems from the strong relationships between its parent bank and Taiwanese corporations that have investments or subsidiaries in Thailand. Back-up credit lines from its parent bank provide Mega ICBC with sufficient liquidity and financial flexibility. As of December 2012, Mega ICBC-Taiwan was rated by Moody’s Investors Service at “A1”, and rated by Standard and Poor’s at “A”, with “stable” outlooks. The ratings were supported by its leading position in Taiwan’s foreign exchange market and offshore banking business, solid capital position, good asset quality, and implicit support from the Taiwanese government.
Based on asset size as of December 2012, Mega ICBC is the smallest commercial bank among 16 commercial banks registered in Thailand, with 0.15% market share in loans and 0.09% market share in deposits. The bank has a limited franchise value, as well as a smaller banking network and a narrower range of services, compared with large local commercial banks. Mega ICBC serves a niche market of Taiwanese-based and Taiwan-affiliated clients operating in Thailand. The bank has an exposure to concentration risk on its customer loans. For example, Mega ICBC has many large-sized customers, and the types of businesses and geographical locations of its customers are not well-diversified.
Mega ICBC’s financial performance has improved, thanks to an increase in net interest income and non-interest income, as well as its efficient control of credit and operating costs. In 2012, the bank reported net profit of Bt269 million, rising substantially from Bt49 million in 2011. The return on average assets (ROAA) reached 1.52% in 2012, up from 0.29% in 2011.
Mega ICBC’s asset quality is good. As of December 2012, non-performing loans (NPLs -- classified loans more than three months overdue) totaled Bt275 million, down slightly from Bt313 million in 2011. The ratio of NPLs to total loans was 1.9%, which was lower than the industry average. In addition, the bank maintains a large cushion of excess reserves for loan losses. At the end of 2012, Mega ICBC’s capital base remained strong, as illustrated by its Tier-1 ratio of 30.42% and total capital adequacy ratio of 31.51%. The bank’s solid level of capital funds is likely sufficient to support its expansion efforts, and to absorb the unexpected losses from any future downside risks.
In terms of liquidity and funding, Mega ICBC’s funding structure has shifted to rely more on its deposit base. At the end of December 2012, 47% of total funding was from deposits, 30% from shareholder’s equity, and 22% from borrowings from the interbank and money markets. Deposits are concentrated, coming mostly from large-sized Taiwanese corporations operating in Thailand. However, the financial support Mega ICBC receives from its parent bank helps mitigate the liquidity risk, and enhances its financial flexibility.
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