TRIS Rating has affirmed the company rating of TMB Bank PLC (TMB) at “A+” and has affirmed the ratings of TMB’s subordinated debentures at “A”. The outlook remains “stable”. The ratings reflect TMB’s average market position, its improving financial profile, and the ongoing support from its major shareholder, ING Bank N.V. (ING Bank). The ratings are, however, constrained by TMB’s relatively weak profitability and its falling yet still high level of non-performing loans (NPLs). The “stable” outlook reflects the expectation of continued improvements in TMB’s financial profile and its asset quality in the medium term. The support TMB receives from ING Bank is expected to further enhance TMB’s risk management system, and to strengthen TMB’s franchise value and competitive edge.
ING Bank became TMB’s shareholder in 2007. As of April 2014, ING Bank (including ING Support Holding) held a 30% stake in TMB while the Ministry of Finance (MOF), another major shareholder, owned 26% of the shares. As a strategic partner, ING Bank has been active in TMB’s management, with its representatives assuming several major roles in the bank. TMB has leveraged ING Bank’s expertise in many key areas, including risk management and its strengths in retail banking services.
TMB was the seventh-largest Thai commercial bank in terms of total assets as of June 2014, with 5.0% market share in loans and 5.6% share in deposits. The growth of TMB’s loan portfolio over the past few years was mainly driven by increased lending in the SME segment. SME lending accounted for 37% of the loan portfolio as of June 2014, up from 27% as of December 2010. TMB plans to have SME loans comprise 50% of the overall loan portfolio within the next five years. While this segment is perceived to yield the best risk-adjusted return to the bank, a higher mix of riskier assets in loan portfolio may become a challenge to TMB’s management team on how to control the bank’s asset quality. SMEs are in general more vulnerable to adverse changes in the economy.
TMB’s asset quality has significantly improved over the last few years. The bank has strived to improve asset quality by recovering, restructuring, selling, and writing off its NPLs. The bank’s consolidated balance of NPLs has fallen from Bt36 billion (9.9% of total loans) as of December 2010 to Bt20.8 billion (4.1%) as of June 2014. Despite the drop in NPLs, the bank’s NPL ratio remains higher than industry average. TMB’s non-performing assets (NPAs, the sum of classified loans more than three months overdue, plus restructured loans, and foreclosed property) has also declined recently. NPAs fell from 53% of the sum of its regulatory capital plus the allowance for doubtful accounts as of December 2010 to 23% as of June 2014. The ratio as of June 2014 compares favorably with the industry average.
TMB has strengthened its loan loss reserve over the last few years. TMB had 2.1 times the Bank of Thailand (BOT) minimum requirement for allowance for loan losses as of June 2014. The industry average was around 1.8 times. With TMB’s increasing excess reserve and declining NPL, its NPL coverage ratio has climbed to 1.4 times, slightly higher than the industry average.
TMB’s operating performance has improved markedly during the last few years. Pre-tax, pre-provision profits (PPP) in 2013 amounted to Bt14.7 billion, compared with Bt4.9 billion reported in 2010. An economic slowdown in the first half of 2014 has had some effect on TMB’s performance. TMB’s PPP for the first half of 2014 declined to Bt6.6 billion, compared with Bt7.2 billion in the same period of 2013. This drop is viewed as temporary and should gradually reverse as the economy begins to improve in the second half of 2014.
Despite the recent significant improvements in its profitability, TMB’s return on average assets (ROAA) was 0.18% in 2012 and 0.78% in 2013. These values were much lower than the industry average of 1.39% in 2012 and 1.54% in 2013. In 2012 and 2013, TMB made one-time extra provisions for loan losses which cut its profits. Even after adjusted for the effects of these one-time items, TMB’s ROAA in 2012 and 2013 were still estimated to be lower than the industry averages. For the first half of 2014, non-annualized ROAA and return on average equity (ROAE) were 0.53% and 6.63%, respectively. The figures were still much lower than the industry average, despite the fact that TMB’s profit for the period included Bt862 million, out of Bt5.1 billion pre-tax earnings, considered to be one-time gain relating to excess provision written back after selling legacy NPL and to restructured debt of a major account.
In terms of funding and liquidity, TMB successfully restructured its funding base to include more diversified and more stable funding sources. The deposit base has steadily increased over the last few years. As of June 2014, TMB’s ratio of loans to deposits plus bills of exchange (B/E) stood at 89%, compared with the industry average of almost 100%. During the first half of 2014, TMB has grown its deposit base as planned, yet it has remained cautious about lending amid a time of economic uncertainty. As a result, the ratio in June 2014 declined from 94% as of December 2013. As the economy starts to recover, TMB is in a good position in terms of funding to focus on expanding its loan portfolio.
TMB has a capital base adequate to support its expansion efforts over the next few years. As of June 2014, TMB’s common equity Tier 1 ratio, Tier 1 ratio, and total capital ratio (BIS ratio) were 10.7%, 10.7%, and 15.4%, respectively. These ratios remained sufficiently higher than the minimum requirements of 4.5%, 6.0%, and 8.5% set by the BOT, respectively.
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