TRIS Rating has assigned the rating of “A+” to the proposed issue of up to Bt6,000 million in senior debentures of Thanachart Capital PLC (TCAP). At the same time, TRIS Rating has affirmed the company rating of TCAP and the ratings of its existing senior debentures at “A+”. The outlook remains “stable”. The ratings are based on TCAP’s position as the investment holding company of the Thanachart Group, management control of Thanachart Bank PLC (TBANK), the core bank subsidiary, through a 50.96% ownership stake, and the stable stream of dividends TCAP receives from TBANK. The ratings take into consideration TCAP’s experienced management team and its improved risk management system. The ratings also reflect the strong business support TCAP receives from its Canadian strategic partner, Bank of Nova Scotia (BNS), which holds a 49% stake in TBANK through Scotia Netherlands Holdings BV. However, the ratings are partially offset by TCAP’s weak asset quality, relatively low but improved reserves for loan losses, and the intense competition in the banking industry. The “stable” outlook reflects the expectation that TBANK, as the major source of revenue for TCAP, will be able to leverage the synergies among TBANK and BNS to strengthen its competitive positions in its core lines of business. The strong financial support and business know-how received from major shareholders, TCAP and BNS, will enhance TBANK’s overall business and financial performance in the future.
TCAP’s company rating is one notch lower than the company rating of TBANK. The one notch difference reflects the structural subordination of TCAP’s obligations to those of TBANK, TCAP’s reliance on dividends from TBANK, and the supervisory barriers which may affect TBANK’s ability to pay dividends.
Based on consolidated asset size as of June 2013, TCAP was ranked sixth among all 15 Thai commercial banks, with 8.2% market share in loans and 7.2% market share in deposits. In 2012 through the first half of 2013, TBANK and its subsidiaries contributed more than 90% of the consolidated net operating income of TCAP. The remainder was from the operations of TCAP and the subsidiary companies, which operate the distressed asset management business.
During the past few years, TCAP’s risk management system has improved, in an effort to comply with international standards. However, TCAP’s risk profile is still hurt by a high level of non-performing assets (NPA; the sum of classified loans more than three months overdue, plus restructured loans and foreclosed property). TCAP has resolved the legacy non-performing loans (NPLs), most of which were assumed when TBANK bought Siam City Bank PLC’s (SCIB) loan portfolio. As a consequence of TCAP’s efforts, the amount of consolidated NPLs fell from Bt39.5 billion in 2010 to Bt33.8 billion in 2012. However, several loans became NPLs during the second quarter of 2013. As a result, the balance of outstanding NPLs rebounded to Bt35.9 billion at the end of June 2013. The ratio of NPLs to total loans rose to 4.55% as of June 2013, higher than the industry average of 2.96%. During the first half of 2013, TCAP set aside additional reserves for loan losses. The additional reserves will absorb the increased credit risk from further deterioration in the loans. As of June 2013, TCAP’s NPAs, expressed as a percentage of the sum of its regulatory capital plus the allowance for doubtful accounts, were 60%, falling from 81% in 2011. Despite the recent improvement, this ratio still far above the industry average of 37%. TCAP faces a continuing challenge to control its NPLs and to enlarge its loan loss reserves.
TCAP’s financial performance has improved after the smooth post-merger integration of TBANK and SCIB. In 2012, consolidated net profit rose to Bt9.8 billion, up by 11% year-on-year (y-o-y). The improvement in net profit was mainly the result of increases in non-interest income and the control of operating costs. For the first half of 2013, TCAP delivered net income of Bt11.2 billion, up by 120% y-o-y. The greater net profit was largely due to a one-time gain from the sale of TBANK’s investment in Thanachart Life Assurance Co., Ltd. (TLIFE) by TBANK. Despite the improvements, TCAP’s profitability remains relatively weak compared with its peers. In 2012, TCAP’s return on average assets (ROAA) of 1.01% remained below the industry average of 1.41%.
TCAP’s capital base remains sufficient to support its growth plans in the medium term. As of June 2013, the company reported a Tier 1 capital ratio (on a fully consolidated basis) of 7.64% and a total capital ratio of 12.85%, up from 7.50% and 12.07% in 2012. These two ratios were above the minimum requirements of 6.00% and 8.50% set by the Bank of Thailand.
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