TRIS Rating Co., Ltd. has upgraded the rating of Thai Military Bank PLC (TMB) to "BBB+" from "BBB-" and the rating of its subordinated debentures to "BBB" from "BB+" with "positive" outlook. The ratings reflect the extended franchise value after the three-way merger scheme with DBS Thai Danu Bank PLC (DTDB) and the Industrial Finance Corporation of Thailand (IFCT). The ratings also take into account the stronger capital base after the bank's recapitalization in 2003. However, these strengths are partially constrained by the transitional risk during the reorganization following consolidation with DTDB and
IFCT in September 2004.
The "positive" outlook reflects the expectation of TMB's improved asset quality and profitability. The three-way merger among TMB, DTDB, and IFCT creates Thailand's fifth largest bank in terms of assets. Moreover, the strengths of each individual partner are expected to create synergy that will enhance franchise value for TMB, helping the bank become a universal bank in accordance with the objectives of the Bank of Thailand's Financial Sector Master Plan. However, TRIS Rating will continue to closely monitor the risk during the transition period.
TRIS Rating reported that the new capital injection worth Bt22,417.5 million under the September 2003 recapitalization plan helped the bank increase its Tier-1 capital to 8.0% after full provisions. With the new capital, the bank was able to set aside provisions for doubtful loans worth Bt16,000 million and redeem its TMB Super Caps (hybrid debt instruments) totaling Bt13,280 million and subordinated debentures worth Bt6,000 million issued in 1999. The redemption helped the bank reduce interest expense significantly by Bt2,300 million per year. In September 2003, TMB's subsidiary, Phayathai Asset Management Co. (PAMC) transferred its non-performing loans (NPLs) worth Bt19,533 million to BBC Asset Management Co., Ltd. (BAM), which lowered TMB's consolidated NPLs from 22.9% of total loans at the end of 2002 to 14.8% at the end of September 2003.
TRIS Rating said as a result of the bank's recapitalization, the bank is in a stronger financial position. After merging with DTDB and IFCT in September 2004, TMB ranks fifth among Thai commercial banks in terms of total assets, up from eighth. TMB's franchise value is expected to be enhanced by IFCT's strengths in project finance and its established corporate and small and medium enterprise (SME) customer base, while DTDB provides high-quality SME customer base and retail network. TMB's contribution is mainly in terms of local market expertise and strong distribution platform. The three-way integration is expected to create synergy and provide TMB with universal banking platform that will enhance its competitive edge in providing full banking services.
At the end of September 2004, TMB had Bt672,222 million in total assets, up from Bt407,068 million at the end of June 2004. However, after the merger, TMB had to reorganize its operations and human resource management, which creates transitional risk while forging cooperation from staff of the three entities. Integration of the merger is likely to take time to realize the bank's mission and goals, TRIS Rating said. -- End
Thai Military Bank PLC (TMB)
Company Rating: Upgraded to BBB+ from BBB-
Issue Rating:
TMB07NA: Bt6,000 million subordinated debentures due 2007 Upgraded to BBB from BB+
Rating Outlook: Positive
IFCT in September 2004.
The "positive" outlook reflects the expectation of TMB's improved asset quality and profitability. The three-way merger among TMB, DTDB, and IFCT creates Thailand's fifth largest bank in terms of assets. Moreover, the strengths of each individual partner are expected to create synergy that will enhance franchise value for TMB, helping the bank become a universal bank in accordance with the objectives of the Bank of Thailand's Financial Sector Master Plan. However, TRIS Rating will continue to closely monitor the risk during the transition period.
TRIS Rating reported that the new capital injection worth Bt22,417.5 million under the September 2003 recapitalization plan helped the bank increase its Tier-1 capital to 8.0% after full provisions. With the new capital, the bank was able to set aside provisions for doubtful loans worth Bt16,000 million and redeem its TMB Super Caps (hybrid debt instruments) totaling Bt13,280 million and subordinated debentures worth Bt6,000 million issued in 1999. The redemption helped the bank reduce interest expense significantly by Bt2,300 million per year. In September 2003, TMB's subsidiary, Phayathai Asset Management Co. (PAMC) transferred its non-performing loans (NPLs) worth Bt19,533 million to BBC Asset Management Co., Ltd. (BAM), which lowered TMB's consolidated NPLs from 22.9% of total loans at the end of 2002 to 14.8% at the end of September 2003.
TRIS Rating said as a result of the bank's recapitalization, the bank is in a stronger financial position. After merging with DTDB and IFCT in September 2004, TMB ranks fifth among Thai commercial banks in terms of total assets, up from eighth. TMB's franchise value is expected to be enhanced by IFCT's strengths in project finance and its established corporate and small and medium enterprise (SME) customer base, while DTDB provides high-quality SME customer base and retail network. TMB's contribution is mainly in terms of local market expertise and strong distribution platform. The three-way integration is expected to create synergy and provide TMB with universal banking platform that will enhance its competitive edge in providing full banking services.
At the end of September 2004, TMB had Bt672,222 million in total assets, up from Bt407,068 million at the end of June 2004. However, after the merger, TMB had to reorganize its operations and human resource management, which creates transitional risk while forging cooperation from staff of the three entities. Integration of the merger is likely to take time to realize the bank's mission and goals, TRIS Rating said. -- End
Thai Military Bank PLC (TMB)
Company Rating: Upgraded to BBB+ from BBB-
Issue Rating:
TMB07NA: Bt6,000 million subordinated debentures due 2007 Upgraded to BBB from BB+
Rating Outlook: Positive