Thai Rating and Information Services Co., Ltd. (TRIS) announced Tuesday 14 November 2000 that it has assigned a corporate rating of Thai Military Bank PLC (TMB) at "BBB" and the rating of Bt6,000 million subordinated debentures of TMB at "BBB-". The ratings reflect TMB's strong capital base following capital injections from the Ministry of Finance (MOF) and new investors. TMB fulfilled tier 1 assistance conditions of the MOF's 14 August 1998 financial reform package by fully provisioning for all classified assets. TMB wrote-off significant amounts of problem loans making non-performing loans decline from Bt85,281 million as of 31 December 1999 to Bt64,214 million as of 30 June 2000. However, TMB may need more time to increase efficiency and competitive status. The fragile economic recovery and rising competition in the banking system also raise concerns about TMB's profitability.
TRIS reported that TMB decided to apply for the MOF's financial support scheme to increase its capital fund so it could cope with its non-performing loans. TMB issued a hybrid debt instrument, a combination of subordinated debt and preferred stocks called Super Caps that it sold to investors for Bt9,960 million in June 1999. The Super Caps can count as tier 1 capital of the bank. TMB received Bt742 million from issuing subordinated debt to the MOF that counted as tier 2 capital in September 1999. In May 2000, TMB issued new common stocks to existing and new strategic investors worth Bt9,960 million, which counted as tier 1 capital base, and received Bt19,920 million that also counted as tier 1 capital from issuing preferred stocks to the MOF in the same period. The infusion of new capital and new funds from existing and new investors and the MOF boosted TMB's capital, and enabled it to write-off significant amount of bad debt, leaving the bank with capital adequacy ratio of 13.42% as of 30 June 2000. This also resulted in a drop of non-performing loans from 32.28% in 1998 to 24.56% at mid 2000.
TMB established an asset management company (AMC) in August 2000 to speed up management of its problem loans. Loans will be transferred to the AMC at a fair market price, which should be well below their original book value. This makes it easier for the AMC to negotiate debt restructuring. The debtors should benefit from better terms and conditions, which will make it easier for them to service their loans and will help prevent the re-entry of non-performing loans.
Currently, TMB has no high burden of loan loss provision on existing loans after fully provisioning, but it had to realize losses from write-offs. Retained losses as of 30 June 2000 were valued at Bt42,333 million. TMB has a niche market in construction loans, accounting for around 10% of total loans. Most of its construction sector clients, however, work on government projects. Since the government has had high budget deficits, the bank may find that loans for government construction projects are a no-growth segment for the next few years.
TRIS said that TMB's major competitors are large private Thai commercial banks and joint venture banks with foreign and Thai partners that focus on the same target of retail customers as TMB. TMB has to improve its competitiveness and efficiency to prepare for toughing competition as many highly competent foreign banks start full operations. Recent changes of key board members and top management personnel, however, have brought about some new initiatives to enhance the bank's competitiveness. A new risk management program and new marketing strategies have been implemented. However, it will take time before the achievements of these programs are seen.
Thai Military Bank PLC (TMB) Company Rating Senior debt BBB Issue Rating TMB#8: Bt6,000 million subordinated debentures due 2007 BBB-