TRIS Rating has upgraded the company rating of Mega International Commercial Bank PLC (Mega ICBC) to “AA+” from “A+” with “stable” outlook. The company rating is enhanced from Mega ICBC’s stand-alone rating. The upgraded rating reflects TRIS Rating’s reassessment of the degree of support Mega ICBC could potentially receive as a highly strategic subsidiary of the Mega ICBC Group.
Mega ICBC’s stand-alone rating is based on its very strong base of capital funds, adequate risk management system, and its 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 its business concentration risk stemming from the loans it makes and the deposits it takes. Mega ICBC’s 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 expectation that Mega ICBC will maintain its status as a highly strategic subsidiary of the Mega ICBC Group, and continue to receive strong support from its parent bank.
The credit profile of Mega ICBC could be affected if the credit profile of the Mega ICBC’s Group or the degree of support change.
Mega ICBC is a wholly-owned subsidiary of Mega International Commercial Bank Co., Ltd. in Taiwan (Mega ICBC-Taiwan). Mega ICBC-Taiwan holds the leading position in Taiwan’s foreign exchange market and the offshore banking segment. Mega ICBC-Taiwan is rated by Moody’s Investors Service at “A1”, and by Standard and Poor’s at “A”. Both rating agencies have issued a “stable” outlook for Mega ICBC-Taiwan.
Mega ICBC had operated as a foreign bank branch in Bangkok since 1947 and became a foreign bank subsidiary in 2005. The bank serves a niche market of Taiwanese-based and Taiwan-affiliated clients operating in Thailand. Mega ICBC 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. A back-up credit line from its parent bank enhances Mega ICBC’s financial flexibility.
Based on asset size, Mega ICBC is the smallest among 17 commercial banks registered in Thailand. At the end of 2014, Mega ICBC had a 0.2% market share in loans and a 0.1% share in deposits. Mega ICBC’s scope of business is relatively narrow, and its distribution channel is limited, compared with its domestic peers. Mega ICBC now offers its financial products and services only through its headquarters and four domestic branches.
Mega ICBC’s loan portfolio expanded significantly in 2014. As of December 2014, loans totaled Bt16.6 billion, up by 20% from last year. The bank’s loan portfolio carries some credit concentration risk because it has many large borrowers. In addition, the types of businesses it lends to and the geographical locations of its customers are not well-diversified. However, Mega ICBC’s loan quality has continually improved, as reflected by a steady decline in non-performing loans (NPLs -- classified loans more than three months overdue). As of December 2014, the ratio of NPLs to total loans (NPL ratio) was 1.0%, the lowest level in the banking industry. Mega ICBC has maintained a large cushion of excess reserves for loan losses. Loan loss reserves were 192% of the regulatory minimum requirement at the end of 2014.
At the end of December 2014, Mega ICBC’s funding structure comprised deposits (47% of total funding), shareholders’ equity (29%), and borrowings from the interbank and money markets (24%). Besides deposits, Mega ICBC has additional 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. Mega ICBC faces concentration risk on its deposits because its major depositors are the large Taiwanese corporations operating in Thailand. However, Mega ICBC would most likely receive financial support from its parent bank to mitigate any liquidity risk.
In 2014, Mega ICBC reported a net profit of Bt236 million, down by 6% year-on-year (y-o-y). Return on average assets (ROAA) declined to 1.3% in 2014, slightly below the 2014 industry average. However, Mega ICBC’s capital funds remain strong, as illustrated by its year-end Tier 1 capital ratio of 27.4% and total capital adequacy ratio of 28.3%. The bank’s solid capital base is sufficient for future growth. The capital base is likely adequate to absorb any unexpected losses from any future downside risks.
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