TRIS Rating affirms the company rating on Mega International Commercial Bank PLC (Mega ICBC) at ?AAA? with a ?stable? outlook. The rating is based on our view that Mega ICBC is a highly strategic subsidiary of Mega International Commercial Bank Co., Ltd. of Taiwan (Mega ICBC-Taiwan, rated ?A+/Stable? by S&P Global Ratings). Mega ICBC receives consistent business and financial support from Mega ICBC-Taiwan, which we expect will continue in the foreseeable future.
KEY RATING CONSIDERATIONS
Highly strategic subsidiary of Mega ICBC-Taiwan
We consider Mega ICBC, a wholly owned subsidiary of Mega ICBC-Taiwan, to be a highly strategic subsidiary of Mega ICBC-Taiwan. Mega ICBC represents Mega ICBC Group in Thailand and continues to serve as part of the group to offer financial services to Taiwanese businesses operating in Thailand. This is aligned with the government of Taiwan?s ?New Southbound Policy? which aims to promote cooperation and exchanges between Taiwan and 18 countries in Southeast Asia, South Asia, and Australia, including Thailand. As a result of the ?New Southbound Policy?, the value of direct investment from Taiwan in Thailand has grown constantly in the past five years with a compound annual growth rate (CAGR) of 18% during 2016-2021. The investment growth accelerated to 142% year-to-date (YTD) in the first half of 2022 (1H22).
The strong linkage between Mega ICBC and its parent is manifested by a high degree of control from the group in terms of business strategy and risk management. Mega ICBC remains highly integrated with the group as evidenced by its adoption of the group?s strategies and financial targets and client referrals from Mega ICBC-Taiwan and Taiwanese government agencies.
In our view, Mega ICBC-Taiwan has a strong and long-term commitment to support Mega ICBC given its full ownership and Mega ICBC?s role as an integral part of the group?s strategy for Southeast Asia. Mega ICBC-Taiwan has a record of providing financial support to Mega ICBC in the form of back-up credit facilities and capital injections. Following the strong loan expansion in 2021-1H22 which led to a decline of the capital ratio in 1H22 to 18.0% from 24.2% in 2020, Mega is in the process of receiving an additional THB1 billion in capital from Mega ICBC-Taiwan. We believe there is a strong likelihood that Mega ICBC will receive extraordinary support from Mega ICBC-Taiwan and the group in a timely manner in times of stress given the reputational risk to the group.
Focus on Taiwanese businesses
With its role as Mega ICBC-Taiwan?s local presence in support of Taiwan?s ?New Southbound Policy? and as the only Taiwanese bank?s subsidiary operating in Thailand, the bank will likely remain focused on Taiwanese corporate customers. Currently credit extension to Taiwanese companies accounts for about 50%-60% of total loan exposure. The bank had THB29.7 billion in total assets at the end of December 2021, a growth of 17% from the previous year. The bank?s market share in loans and deposits among commercial banks in Thailand is modest, similar to other foreign banks. Mega ICBC?s portfolio remains concentrated in wholesale banking, especially in the manufacturing sector. Loans to the manufacturing sector accounted for 56% of total lending at the end of June 2022.
Prudent risk management policies aligned with the group
As an integral part of the group, Mega ICBC adopts Mega ICBC-Taiwan?s prudent risk management policies and operates under the group?s operating platforms. Mega ICBC's prudent underwriting standards and good credit risk management should continue to support its well-managed asset quality. In addition, the Overseas Credit Guarantee Fund (OCGF), a Taiwanese credit guarantee facility, guarantees a portion of Mega ICBC?s credit exposure to Taiwanese businesses operating in Thailand. This should provide a significant cushion against credit loss. Despite the deterioration of asset quality due to the impacts of the Coronavirus Disease 2019 (COVID-19) pandemic, Mega ICBC's non-performing loan (NPL) ratio remained better than the average of the Thai banking system of 2.88% in the second quarter of 2022 (2Q22). The bank?s NPL ratio rose slightly to 1.22% in 2Q22 from 0.97% at the end of 2021, and 1.19% at the end of 2020.
Ongoing financial support from the group
We expect Mega ICBC?s funding and liquidity profiles will continue to be supported by the group at an adequate level in the form of credit facilities. At the end of June 2022, the bank had available credit facilities of around THB10.4 billion from the group. We assess the group as willing and financially capable of supporting Mega ICBC, if needed. The bank also had available credit facilities of around THB14.4 billion from various local financial institutions at the end of June 2022.
BASE-CASE ASSUMPTIONS
TRIS Rating?s base assumption is that Mega ICBC will remain a highly strategic subsidiary of Mega ICBC-Taiwan.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that Mega ICBC will maintain its status as a highly strategic subsidiary of the Mega ICBC-Taiwan and continue to receive strong support from its parent bank.
RATING SENSITIVITIES
The rating on Mega ICBC is at the highest level of ?AAA? with a ?stable? outlook. The rating and outlook could be revised downward if the rating on Mega ICBC-Taiwan were revised downward. Any change in our view of Mega ICBC?s group status as well as the group?s structure and strategy such that Mega ICBC was no longer a highly strategic subsidiary of the group could also negatively impact its rating and/or outlook.
COMPANY OVERVIEW
Mega ICBC is a wholly owned subsidiary of Mega ICBC-Taiwan, a leading banking institution in Taiwan. Mega ICBC, formerly ?The Bank of China?, was established in 1947 as a foreign bank branch in Bangkok. Mega ICBC serves a niche market of Taiwanese-based and Taiwan-affiliated clients operating in Thailand. In 1971, the bank changed its name to ?International Commercial Bank of China? (ICBC), following the transformation of its parent bank in Taiwan. Under the Financial Sector Master Plan launched by the Bank of Thailand (BOT), Mega ICBC upgraded its status to become a foreign bank subsidiary in August 2005, after raising its paid-up capital to THB4 billion from THB1 billion. Mega ICBC subsequently set up four branches in Thailand: the Chonburi branch in 2005, the Bangna branch in 2006, the Ban Pong branch (Ratchaburi province) in 2011, and the Rayong branch in April 2014.
The merger of ICBC with Chiao Tung Bank in Taiwan in August 2006 created a new large financial institution named ?Mega International Commercial Bank?. Mega ICBC-Taiwan offers its financial products and services through an extensive network. Mega ICBC-Taiwan holds a leading position in Taiwan?s foreign exchange market and the offshore banking segment. S&P Global Ratings rates Mega ICBC-Taiwan at ?A+? with a ?stable? outlook.
RELATED CRITERIA
- Group Rating Methodology, 13 January 2021
- Banks Rating Methodology, 3 March 2020
Mega International Commercial Bank PLC (Mega ICBC)
Company Rating: AAA
Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: +66 0 2 098 3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2022, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient?s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at www.trisrating.com/rating-information/rating-criteria