TRIS Rating 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 shareholder, 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. These strengths, however, are counter-balanced by a declining but high level of non-performing loans (NPLs), relatively weak profitability, more intense competition in the banking industry, as well as uncertainty in the global financial markets. These factors might limit the bank’s growth and profitability. The “stable” outlook reflects the expectation of further improvement in TMB’s financial profile and asset quality in the medium term. The continued support from ING Bank is expected to further enhance TMB’s risk management system, and to strengthen TMB’s franchise value and competitive edge.
The “BBB+” rating for TMB’s Bt4,000 million in hybrid Tier 1 securities (TMB09PA) reflects both the subordination level risk and payment deferral risk 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 holders of 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.
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 2013, 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 its 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 growing the base of profitable loans, improving asset quality, securing stable sources of funding, and enhancing operating efficiency. These challenges loom amid the uncertainty surrounding the future operating environment.
TMB was the seventh-largest Thai commercial bank in terms of total assets as of March 2013, with 4.9% market share in loans and 5.2% share in deposits. At the end of March 2013, the bank’s loan portfolio expanded to Bt454.3 billion, up by 13% compared with Bt400.8 billion as of March 2012. In accordance with its strategic growth plan, TMB has concentrated more on lending to small- to medium-sized enterprises (SMEs). These types of loans offer higher returns, so as to improve the bank’s profitability. Loans to SMEs, however, are considered as medium to high credit risk loans. TMB’s credit profile may weaken, should SME customers become troubled loans due to adverse changes in the economy.
TMB’s risk management system has been enhanced during the past five years. The bank has strived to improve asset quality by recovering, restructuring, selling, and writing off its NPLs. As a consequence, the bank’s consolidated balance of NPLs has fallen from Bt76.5 billion in 2007 to Bt21.9 billion at the end of March 2013. The ratio of NPLs to total loans declined to 4.80% as of March 2013, from 16.32% in 2007. Despite the drop in NPLs, the bank’s NPL ratio remained the highest among 11 Thai commercial banks (excluding four non-listed banks), and above the industry average of 2.97% at the end of March 2013. TMB maintains a larger cushion of capital funds, plus allowances for doubtful accounts, to absorb the unexpected losses from future downside risks. As of March 2013, non-performing assets (NPAs, the sum of classified loans more than three months overdue, plus restructured loans, and foreclosed property) was 25% of the sum of its regulatory capital plus the allowance for doubtful accounts. The ratio improved from 41% in 2011, and was better than the industry average of 39%.
In 2012, TMB’s interest and non-interest income continued to increase as it expanded. However, to strengthen its cushion of surplus reserves for loan losses, TMB set out large amounts of provisions for doubtful accounts in 2012. The bank’s credit cost rose significantly, climbing to Bt8.6 billion or up by 182% year-on-year (y-o-y). As a result, net profit in 2012 tumbled to Bt1.6 billion, falling by 60% from Bt4.0 billion in 2011. In 2012, return on average assets (ROAA) was 0.22%, down from 0.61% in 2011. Nonetheless, TMB’s financial performance in the first quarter of 2013 was satisfactory. TMB delivered net income of Bt1.8 billion, up by 124% y-o-y. Non-annualized ROAA was 0.25%, rising from 0.11% for the same period last year. TRIS Rating expects TMB will be able to strengthen its financial position, and to enhance its financial stability in the medium term.
In terms of funding and liquidity, TMB succeeded in restructuring its funding base to have more diversified and more stable funding sources. The deposit base has steadily increased over the past few years. TMB has also maintained a high level of liquidity. As of March 2013, the bank’s ratio of loans to deposits plus bills of exchange (B/Es) was 90%, lower than the industry average of 95%.
TMB has an adequate capital base to support its expansion efforts during the medium term. As of March 2013, TMB’s common equity Tier 1 ratio, Tier 1 ratio and total capital ratio (BIS ratio) were 10.70%, 11.50% and 17.31%, respectively. These ratios remained higher than the minimum requirements of 4.50%, 6.00% and 8.50%, respectively, set by the Bank of Thailand (BOT).
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