TRIS Rating has assigned the company rating of Government Savings Bank (GSB) at “AAA” with “stable” outlook. GSB’s rating reflects TRIS Rating’s view of its strong business position, sound financial performance, and the strong likelihood of the government support in the event of financial difficulty, as prescribed in the Government Savings Bank Act, B.E. 2489 (1946). The Act states that GSB’s obligations to repay principals, interest on deposits, and other payment obligations are all guaranteed by the government.
The “stable” rating outlook reflects the expectation that GSB will maintain its status as a special-purpose financial institution under the laws and continue to receive a strong support from the government.
The credit rating and/or outlook of GSB could change if the status of GSB under the laws is changed or if our view on the importance of GSB’s policy role in relation to the government’s policy directions is changed.
GSB plays a critical role in serving as the people’s bank and supporting the government policies. For more than a century since its establishment in 1913, GSB has consistently delivered solid performances, focusing on banking services for retail segments to align with and support the government’s economic and social development policies.
Like other special financial institutions (SFIs), GSB is currently supervised by the Bank of Thailand (BOT). On 11 October 2016, the BOT announced supervisory guidelines for SFIs, which basically follow the Basel II framework. The guidelines aim at strengthening SFI’s risk management and enhancing their operating efficiency, corporate governance, and transparency. These should help GSB develop a long-term sustainability. However, GSB’s challenge is how to strike a balance between meeting its institutional mission and maintaining its sound financial performance. In particular, GSB has to provide activities related to the government policies and initiatives to support certain segments of the Thai economy. These policy services are normally non-profitable.
As of June 2016, GSB rendered banking services nationwide through 1,045 branches, 6,088 automated telling machines (ATMs), 1,066 foreign exchange booths, and 20,999 staffs. Compared with the Thai commercial banks, GSB is the third largest in terms of deposits, the fourth largest in terms of loans and the fifth largest in terms of assets. GSB’s business profile is considered strong, with a well-diversified retail customer base, geographic coverage, and impressive banking networks and services. At the end of June 2016, GSB’s total loans were Bt1.75 trillion, of which about 75% were loans for retail customers and small and medium enterprises (SMEs), and 25% for corporate customers.
GSB has a solid base of deposits and attractive deposit products. The bank’s funding structure was 88% deposits, 5% interbank borrowings, and 7% shareholders’ equity. Its deposits base is considered more diversified than the average of commercial banks*. As of June 2016, total deposits were Bt2.07 trillion, of which 75% were deposits per account of less than Bt25 million.
For revenue structure, GSB has relied predominantly on interest revenue, accounting for 87% of its total revenue. The rest is fee income (5%) and other income (8%). We do not expect GSB to achieve a higher fee-based income significantly in the near future. Unlike commercial banks, pushing for higher returns is not GSB’s primary focus.
GSB has sound liquidity, with moderate profitability and leverage. Its strengths in retail deposits enable GSB to have good liquidity. As of June 2016, the ratio of loans to deposits stayed around 84%, compared with around 100% for the commercial banks’ average.* As an SFI, GSB is not set to achieve returns. Its profitability has been, therefore, relatively lower than the average of commercial banks*. Its return on average assets (ROAA) normally sustained at around 1% in 2011-2015, while the average of commercial banks* ranged from 1.3% to 1.7%.
GSB has a sufficient base of capital fund. As of June 2016, GSB’s total capital ratio (BIS ratio) was 11.55%, which is considered sufficiently higher than the minimum requirement of 8.5% set by the BOT, but still far below an average of around 16.8% for commercial banks*.
GSB’s asset quality is considered better than the industry norm of the Thai commercial banks. Like other financial institutions, the bank’s asset quality has deteriorated due to the slowing economy. The ratio of non-performing loans (NPLs) to total loans rose from less than 1% in 2011 to 2.6% as of June 2016. The ratio was lower than an average of 3.5% for commercial banks* for the same period. Asset quality deterioration will continue to be a concern in the near term with the NPL formation rate on the rising trend during the first half of 2016.
GSB’s cushion of loan loss reserve against the required level was relatively low, at 114% as of June 2016, compared with commercial banks’ industry* average of 166%. The provisioning requirements under the supervisory guidelines set by the BOT are expected to raise GSB’s credit costs and put pressure on its future profitability.
Government Savings Bank (GSB)
Company Rating: AAA
Rating Outlook: Stable
* The average of commercial banks means the average of eleven listed commercial banks as follows
1. Bank of Ayudhya PLC (BAY)
2. Bangkok Bank PLC (BBL)
3. CIMB Thai Bank PLC (CIMBT)
4. KASIKORNBANK PLC (KBANK)
5. Kiatnakin Bank PLC (KKP)
6. Krung Thai Bank PLC (KTB)
7. LH Financial Group PLC (LHBANK)
8. The Siam Commercial Bank PLC (SCB)
9. Thannachart Capital PLC (TCAP)
10. Tisco Financial Group PLC (TISCO)
11. TMB Bank PLC (TMB)
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