TRIS Rating has assigned a rating of “A” to the proposed issue of up to Bt7,000 million in hybrid Tier 2 capital securities of Thanachart Bank PLC (TBANK). At the same time, TRIS Rating has affirmed the company rating of TBANK at “AA-”, and has affirmed the ratings of TBANK’s existing subordinated debentures and hybrid Tier 2 capital securities at “A+” and “A”, respectively. The outlook remains “stable”. The ratings reflect TBANK’s strong franchise in its core line of business, auto hire-purchase lending. The ratings also take into account the strong support TBANK receives from its Canadian strategic partner, Bank of Nova Scotia (BNS), which holds a 49% stake in TBANK through Scotia Netherlands Holdings B.V. The ratings, however, are constrained by TBANK’s relatively low profitability, weak asset quality, and a low but rising surplus of loan loss reserves. The recent slowdown of the Thai economy and sluggish domestic auto sales remain the major factors which may limit TBANK’s growth and profitability.
The “A” ratings for TBANK’s hybrid Tier 2 capital securities reflect the subordination risk of the securities, and the nonpayment risk of the securities, as defined by the non-viability loss absorption clause. The features of the securities comply with the BASEL III guidelines and the securities are qualified as Tier 2 capital under the Bank of Thailand’s (BOT) criteria.
The hybrid Tier 2 capital securities (TBANK24DA) are subordinated, unsecured, non-deferrable, and convertible. The securities are also callable by TBANK prior to the maturity date, if the call date is at least five years after issuance and as long as the bank has received approval from the BOT. The holders of the securities are subordinated to TBANK’s depositors and holders of TBANK’s senior unsecured debentures. The principal of the securities can be converted into common shares in the event that the regulator deems the bank to be non-viable and decides to provide financial support to the bank, in accordance with the non-viability clause.
The new issues of hybrid Tier 2 capital securities are subordinated, unsecured, non-deferrable, and non-convertible. The securities are also callable by TBANK prior to the maturity date, if the call date is at least five years after issuance and as long as the bank has received approval from the BOT. The holders of the securities are subordinated to TBANK’s depositors and holders of TBANK’s senior unsecured debentures. The principal of the securities can be written down in the event that the regulator deems the bank to be non-viable and decides to provide financial support to the bank, in accordance with the non-viability clause.
The “stable” outlook reflects the expectation that TBANK will maintain its competitive positions in its core lines of business. The outlook is also based on the expectation that TBANK’s loan quality will not deteriorate significantly, despite the current slowdown in the Thai economy.
TBANK’s credit profile could be negatively impacted if TBANK's profitability declines substantially due to its shrinking loan portfolio and rising credit cost. In contrast, the credit upside is limited in the near term because TBANK’s market share in loans has declined, and its asset quality remains relatively weak.
TBANK, a core subsidiary of Thanachart Capital PLC (TCAP) by virtue of TCAP’s 50.96% shareholding, is the sixth-largest Thai commercial bank as measured by asset size. TBANK had a 7.1% market share in loans and a 6.3% share in deposits as of December 2014. TBANK’s loan portfolio is now more diversified across a greater number of industrial sectors after the bank acquired Siam City Bank PLC (SCIB) in 2010. As of December 2014, the bank’s loan portfolio comprised retail loans (68% of total loans), and corporate loans plus small and medium-sized enterprise (SME) loans (32%). At the end of 2014, TBANK’s loans and receivables declined to Bt755.2 billion, down by 5% year-on-year (y-o-y).
TBANK is the largest auto loan provider in Thailand, with approximately 26% market share in auto loans at the end of 2013. TBANK rapidly expanded its portfolio of auto hire-purchase loans. The opportunity to expand came when the former government implemented an economic stimulus package. TBANK’s auto loan portfolio grew by a 39% y-o-y in 2012 and rose by 11% y-o-y in 2013. However, because of a slowing economy and sluggish auto sales, TBANK’s auto loan portfolio contracted by 9% in 2014. On a consolidated basis as of December 2014, TBANK’s auto hire-purchase loans outstanding amounted to Bt399.3 billion, accounting for 53% of total loans.
TBANK’s credit profile has been constrained by a high level of non-performing assets (NPAs, the sum of classified loans more than three months overdue, plus restructured loans and foreclosed property). The high level is, in part, a legacy of the acquisition of SCIB’s commercial loan portfolio. At the end of 2014, the value of the bank’s non-performing loans (NPLs) declined to Bt31.2 billion, down from Bt35.3 billion in 2013. The ratio of NPLs to total loans fell to 4.1% in 2014, compared with 4.5% in 2013. To strengthen its buffer against loan losses, TBANK increased its excess reserves for loan losses. The bank’s allowance for loan losses, as a percentage of BOT’s minimum requirement, was 137.5% in 2014, rising from 130.6% in 2013. However, TBANK’s ratio remains far below the industry average.
In 2014, TBANK delivered a net profit of Bt10.2 billion, up by 1% from the net income (excluding a one-time gain from divesting its subsidiary, and an extra provisions for loan losses) reported for the same period last year. Credit costs remained high because TBANK incurred more new NPLs in 2014. TBANK’s profitability is relatively weak compared with its peers. The bank’s return on average assets (ROAA) is still far below the industry average. TBANK’s profitability may fall if further deterioration in its loan portfolio triggers increases in its credit cost.
TBANK’s regulatory capital base has improved, and it is adequate to support its growth plans for the next few years. The capital buffer is likely sufficient to absorb unexpected losses from future downside risks. As of December 2014, the Tier 1 capital ratio and the total capital ratio were 10.70% and 15.83%, respectively, above the minimum requirements of 6.00% and 8.50% set by the BOT. TBANK’s total capital ratio was comparable with the industry average but its Tier 1 capital ratio remained lower than the industry average.
Thanachart Bank PLC (TBANK)
Company Rating: AA-
Issue Ratings:
TBANK155A: Bt5,000 million subordinated debentures due 2015 A+
TBANK204A: Bt6,000 million subordinated debentures due 2020 A+
TBANK227A: Bt8,497 million subordinated debentures due 2022 A+
TBANK22OA: Bt4,018.5 million subordinated debentures due 2022 A+
TBANK24DA: Bt13,000 million hybrid Tier 2 capital securities due 2024 A
Up to Bt7,000 million hybrid Tier 2 capital securities due within 2025 A
Rating Outlook: Stable