TRIS Rating has affirmed the company rating of Bank of Ayudhya PLC (BAY) at “AAA” with “stable” outlook. The rating is enhanced from BAY’s stand-alone credit profile to reflect its status as a highly strategic member of Mitsubishi UFJ Financial Group (MUFG). The stand-alone rating is based on BAY’s stable market position in its core business and the synergies achieved from integrating its business with Bank of Tokyo-Mitsubishi UFJ Bangkok branch (BTMU Bangkok) in 2015 as well as potential synergy. The rating, however, is partially constrained by the challenging market conditions which may continue to pressure BAY’s credit cost and asset quality.
The “stable” rating outlook reflects the expectation that BAY will maintain its status as a highly strategic subsidiary of the MUFG Group and continue to receive a strong level of support from its parent bank.
The credit rating and/or outlook of BAY could change if the credit profile of MUFG Group changes or if our view of the strategic importance of BAY to the group changes.
BTMU is a wholly-owned subsidiary of MUFG, the largest financial group in Japan. BTMU became BAY’s major shareholder after it acquired a 72.01% stake through a voluntary tender offer in December 2013. After the integration of BTMU Bangkok with BAY on 5 January 2015, BTMU’s stake in BAY increased from 72.01% to 76.88%. The Ratanarak Group remains a key partner of BAY through its 20% stake. As of December 2015, BTMU was rated by Moody’s Investors Service at “A1” with a “stable” outlook, and rated by Standard and Poor’s at “A+” with a “negative” outlook. BAY’s ratings reflect the expected support it will receive from its parent group in times of financial distress.
BAY is the fifth-largest Thai commercial bank in terms of total assets, with a 11.4% market share in loans and a 9.0% share in deposits as of June 2015. The integration of BAY and BTMU Bangkok strengthens BAY’s business profile, securing its leadership position in consumer finance and expanding its market share in corporate and small and medium enterprise (SME) banking. BTMU Bangkok’s loan portfolio comprises mostly high-quality corporate loans, which complements BAY’s strength in high-yield retail lending. The loan portfolio grew by almost one-fourth and has become more balanced after the merger. BAY will also have more opportunities to cross-sell its financial products to a larger customer base. BTMU Bangkok’s strong relationships with large Japanese corporations in Thailand can help connect BAY to a large number of employees working for these corporations and to Thai SMEs in these corporations’ supply chains.
BAY’s asset quality was impacted by the slowing economy. Non-performing loans (NPLs) rose from Bt30.0 billion at the end of 2014 to Bt32.9 billion in September 2015, despite the sale of Bt1.4 billion worth of NPLs during that period. In percentage terms, however, the NPL ratio declined from 3.0% of total loans at the end of 2014 to 2.7% in September 2015. The loan transfer from BTMU Bangkok in January 2015 added roughly one-fourth to the total loan portfolio but with a relatively low number of NPLs.
In 2014, BAY reported a net profit of Bt14.3 billion, a 19% year-on-year (y-o-y) increase. Return on average assets (ROAA) in 2014 was 1.20%, up from 1.06% in 2013. The rise in profit was mainly driven by higher net interest income, improved operating efficiency, and slightly lower credit cost in 2014. For the first nine months of 2015, non-annualized ROAA and return on average equity (ROAE) were 0.96% and 8.63%, respectively, slightly lower than the industry average.
In terms of funding and liquidity, BAY’s ratio of loans to deposits plus bills of exchange (B/E) is weaker than peers. As of September 2015, the ratio was 112% for BAY, compared with less than 100% for the industry average. BAY relies more on long-term borrowings as a funding source, relative to peers, due to the higher proportion of fixed-rate long-term hire-purchase loans in its loan portfolio.
BAY has a solid base of capital funds. The bank’s regulatory capital is sufficient to support its expansion efforts over the next few years. As of September 2015, BAY’s Tier 1 ratio and total capital ratio (BIS ratio) were 12.5% and 14.3%, respectively. These ratios are sufficiently higher than the minimum requirements, excluding conservation buffer, of 6% and 8.5% set by the Bank of Thailand (BOT), respectively.
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