TRIS Rating Co., Ltd. has upgraded the company rating of Bank of Ayudhya PLC (BAY) to "A" from "A-" and has upgradeed the rating of BAY's Bt12,000 million subordinated debentures (BAY13NA) to "A-" from "BBB+". The ratings reflect BAY's continued improvement in profitability and greater cushion against loan loss. The ratings also take into account the bank's extensive branch network, support from its major shareholder, and its organizational re-engineering activities. However, these strengths are partially offset by intense competition in the banking sector, remaining high level of non-performing loans (NPLs), and relapses of restructured loans. The "stable" rating outlook recognizes the improvement in BAY's business performance, supported by the good prospects of the banking sector and rising demand for loans. BAY's profitability is expected to sustain, aided by lower cost of funds and its on-going re-engineering activities. BAY is also expected to make progress on resolving its remaining NPLs, as well as enhance its provisioning level.
TRIS Rating reported that BAY is the sixth largest commercial bank in Thailand in terms of assets, with market shares of loans and deposits at around 9%. BAY's major shareholder is the Ratanarak family, which held 32% of the bank's shares as of April 2004. The bank directly owns companies engaging in various types of financial services, positioning itself as a universal bank. To cope with tough competition in the banking sector, BAY has implemented several re-engineering activities, including re-branding, IT capability enhancement, branch reformation, early retirement programs, and recruiting new staff. BAY's management has maintained conservative credit policies, which, together with support from the Ratnarak family, have helped the bank survive the 1997 financial crisis. With its extensive branch network, BAY has recently focused more on retail banking. Following rising demand for loans fueled by economic growth and low interest rate level, BAY's total loans rose by 6% in 2003. Of this growth, loans for personal consumption grew strongly by around 21%. Despite the growing exposure to retail borrowers in recent years, approximately half of BAY's total loans are wholesale loans.
BAY's asset quality has improved continuously. By gradually solving its troubled loans problems, BAY has reduced the proportion of NPLs to total loans to 15.3% as of June 2004, compared with 24.2% as of 2001. However, the remaining NPLs are more complicated. Along with it peers, BAY has experienced the problem of re-entry NPLs as restructured loans are susceptible to adverse changes in economic conditions. Supported by greater provisioning, BAY's NPL coverage ratio improved from 27.5% as of 2002 to 35.3% as of 2003 and 35.7% as of June 2004, but was still far below the average of Thai commercial banks. Although BAY's NPLs may increase following more stringent reclassification criteria recently implemented by the Bank of Thailand (BOT), the NPL coverage ratio is expected to improve further as BAY's higher profitability enhances its ability to set aside additional provisions. Moreover, the management also intends to increase the provisioning level over the next few years.
BAY continued to report favorable profits in 2003 and during the first half of 2004, led by the reduction in cost of funds and increases in non-interest income. BAY's cost of funds fell sharply after it redeemed its high-cost subordinated debentures, including its Stapled Limited Interest Preferred Shares (SLIPS) worth Bt26,000 million, which were issued as part of its 1999 capitalization program. After increasing its paid-up capital by Bt10,000 million in 2003, BAY redeemed its SLIPS in March 2004, helping it improve substantially its net interest spread. BAY generated a net profit for two years in succession in 2002 and 2003 after four years of net losses starting in 1998. However, its profitability remained pressured by the need for additional provisioning and intense competition in the banking sector, TRIS Rating said. - End
Bank of Ayudhya PLC (BAY) Company Rating: Upgraded to A from A- Issue Rating: BAY13NA: Bt 12,000 million subordinated debentures due 2013 Upgraded to A- from BBB+ Rating Outlook: Stable