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+” with “stable” outlook. The company rating is enhanced from Mega ICBC’s stand-alone rating. The enhancement reflects Mega ICBC’s status as a strategically important subsidiary of Mega ICBC-Taiwan and the business and financial support Mega ICBC receives from its parent bank. Mega ICBC’s stand-alone rating is based on its very strong base of capital funds, an adequate risk management system, and a competitive edge in lending to Taiwanese investors. However, the rating is constrained by the bank’s small market shares in loans and deposits, its limited domestic banking network, and business concentration risk on the loans it makes and the deposits it takes. Mega ICBC’s future growth might be affected by the limited prospects for direct investments in Thailand by Taiwanese companies and the current slowdown in the Thai economy. The “stable” rating outlook reflects the likelihood that Mega ICBC will be able to sustain its financial position as expected. The outlook also rests on the assumption that the bank will maintain its role as an important, strategic subsidiary of its parent bank. Mega ICBC benefits from being a strategic subsidiary because it can more easily expand its scope of business while retaining its 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. The bank serves a niche market of Taiwanese-based and Taiwan-affiliated clients operating in Thailand. Mega ICBC is an integral part of its parent bank’s strategies, business model, and operational system. 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 Taiwanese customer base is a direct result of 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 have provided Mega ICBC with sufficient liquidity and financial flexibility. Mega ICBC-Taiwan maintains its leading position in Taiwan’s foreign exchange market and the offshore banking segment. Mega ICBC-Taiwan is rated by Moody’s Investors Service (Moody’s) at “A1”, and by Standard and Poor’s (S&P) at “A”. Both rating agencies have issued a “stable” outlook for Mega ICBC-Taiwan.
Based on asset size as of December 2013, Mega ICBC was the smallest among 16 commercial banks registered in Thailand. Mega ICBC has a small domestic franchise, as reflected by its meager 0.1% market share in loans and 0.1% share in deposits. Mega ICBC’s scope of business is relatively narrow, while its distribution channel is limited. Mega ICBC now offers its financial products and services through its four domestic branches. As of December 2013, loans totaled Bt13.8 billion, contracting by 3% from the level in 2012. The bank’s loan portfolio carries some credit concentration risk because it has many large borrowers. In addition, the types of businesses and geographical locations of its customers are not well-diversified.
Mega ICBC’s risk management efforts have improved, as reflected by a steady decline in non-performing loans (NPLs -- classified loans more than three months overdue) from 2009 through 2013. The ratio of NPLs to total loans was 1.8% in 2013, falling from 3.2% in 2009. In addition, Mega ICBC has maintained a large cushion of excess reserves for loan losses. Loan loss reserves were 220% of the regulatory minimum requirement at the end of 2013. Mega ICBC’s capital base is very strong, as illustrated by its Tier 1 capital ratio of 30.2% and total capital adequacy ratio of 31.3% as of December 2013. The bank’s solid level of capital funds is likely sufficient to absorb the unexpected losses from any future downside risks.
Mega ICBC’s profitability is satisfactory, despite a slight fall last year. In 2013, the bank reported a net profit of Bt252 million, down by 6% year-on-year (y-o-y). The decline in net income was mainly due to a fall in net interest income, following the contraction in the loan portfolio. Return on average assets (ROAA) was 1.42% in 2013, down from 1.51% in 2012, and below the 2013 industry average of 1.54%.
Mega ICBC’s liquidity profile and funding profile remain adequate. The bank maintains a high level of liquid assets to meet any potential short-term liquidity need. Besides deposits, Mega ICBC has acquired stable sources of funding, denominated in foreign currency, from its affiliated foreign financial institutions. The bank uses the foreign currency funds to match its foreign currency lending. As of December 2013, Mega ICBC’s funding structure comprised deposits (47% of total funding), shareholders’ equity (31%), and borrowings from the interbank and money markets (22%). 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 any liquidity risk and enhances its financial flexibility.
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