TRIS Rating affirms the company rating of Kiatnakin Bank PLC (“KK”) at “A-” and affirms the existing ratings of KK’s senior unsecured debentures and hybrid Tier-2 capital securities at “A-” and “BBB”, respectively. At the same time, TRIS Rating assigns the rating of “A-“ to KK’s proposed issue of up to Bt3,000 million in senior unsecured debentures.
The ratings reflect KK’s strengthened business position following its successful integration of capital market and commercial banking operations. This integrated operating platform will significantly enhance its niche position in the Thai banking industry with unique strengths in fee-based business. The ratings take into account KK’s diverse sources of revenue, particularly those from non-credit businesses, and its strong capital position. The ratings are, however, constrained by KK’s small market share in loans and deposits and relatively weak funding capability.
KK is a small size commercial bank in the Thai banking industry. It was ranked 10th among 11 Thai commercial banks listed on the Stock Exchange of Thailand (SET) in terms of consolidated asset size, with 1.7% market share in loans and 1.2% share in deposits as of September 2017. KK has diverse sources of revenue, with net interest income and net fees and service income contributing 61.8% and 23.6%, respectively, during 2017. The bank’s strategic focus for revenue growth is on fee-based business, particularly private banking. It also has a strong market position in investment banking and securities brokerage.
KK has a relatively strong capital position, with a Basel-III compliant total capital ratio of 17.7% as of December 2017, around 83% of which was core equity Tier-1. Profitability of the bank is high by industry standards, with a return-on-average-asset ratio of 2.3% during 2017.
KK’s asset quality is on an improving trend indicated by low credit costs of 0.8% in 2017, down from a peak of 2.8% in 2014. Non-performing loan (NPL) coverage ratio improved from 80.3% in 2014 to 109.6% as of December 2017. NPL as a percentage of total loans improved to 5% as of December 2017 from 5.8% in 2015. Real estate and construction sectors continue to represent a significant portion of the total NPLs.
KK has a relatively high reliance on borrowing, which is viewed as a less stable and relatively expensive funding source. Loan-to-deposit ratio including bills of exchange (B/Es) was 145.3% as of December 2017, on the high side relative to the industry. Current account and savings account (CASA) made up 40.6% of total deposits including B/Es, also below the industry average.
RATING OUTLOOK
The “stable” outlook reflects the expectation that KK will maintain its business position with its strengths in non-credit fee based businesses and its strong capital and earnings position.
RATING SENSITIVITIES
The ratings could be revised downward in case of a sustained period of substantially weakened profitability or a severe deterioration of asset quality. A rating upgrade will depend on KK’s ability to significantly increase its shares of earnings from fee-based businesses or materially improve its funding capability.
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