TRIS Rating Co., Ltd. has affirmed the company rating of Small and Medium Enterprise Development Bank of Thailand (SME Bank) and the rating of its senior debentures (SME087A) at “AA-” with “stable” outlook. The ratings reflect the strong financial support that SME Bank has received from the government through the Ministry of Finance (MOF), following the bank’s influential role as a key promoter of small- and medium-sized business enterprises (SME), one of Thailand’s economic growth engines. SME Bank’s stand-alone performance was considered weaker than expectations, but the overall ratings are maintained due to strong government support. Although there was clearer evidence demonstrating the bank’s efforts to improve risk management system framework and to tackle asset quality problems in 2005, chronic inefficient practices and problems relating to loose internal operations increased operating inefficiency and non-performing loans. The problems forced the bank to begin a structural reorganization under a new board of directors and management team in late 2006. The ratings also take into account the expected volatility of the bank’s financial performance during its restructuring phase, as well as the less favorable economic and banking business environment.
The “stable” outlook reflects SME Bank’s influential status as one of the main policy banks that helps spur growth of the economy through long-term funding provided to SMEs. The outlook is premised on the expectation in the medium term that SME Bank’s new board of directors and management team will be able to improve its operating efficiency and establish culture of good corporate governance to effectively control internal operating losses. The outlook also reflects the expectation that SME Bank’s relationship with the government and related state entities, along with the financial support in the form of capital and subsidies from the government, is unlikely to change in the future.
TRIS Rating reported that SME Bank was established in 2002 under the Small and Medium Enterprise Development Bank of Thailand Act of Parliament B.E. 2545 (2002), to take over the SME-support function as well as finances and operations of the Small Industry Finance Corporation (SIFC), which was constituted under the Small Industry Finance Corporation Act B.E. 2534 (1991). Prior to the upgrade of SIFC into SME Bank, the MOF twice injected new capital into SIFC, and two years after the creation of SME Bank, the MOF added more equity. The succession of Bt2,500 million recapitalizations in October 2005 and MOF’s intention to inject Bt2,700 million additional capital to the bank in 2007 confirms the strong financial support the government provides to SME Bank to perform its policy role to support SME operators.
TRIS Rating said that SME Bank delivered significantly weak financial performance in the first nine months of 2006, which it posted a net loss of Bt388 million. A crucial problem was the increase in non-performing loans (NPL), which increased the bank’s expenses for additional provisions for possible loan loss by Bt712 million. SME Bank’s ratio of NPLs to average loans jumped from 23% in 2005 to 37% as of September 2006. However, 88% of NPLs were from loans originated before 2005. In 2005, SME Bank developed a risk management framework, but chronic inefficient practices and internal operation problems spurred operating inefficiency, and led the bank into the structural reorganization processes. Rising NPLs also deteriorated the bank’s cushion of capital funds and allowances for loan loss against bad debts. The ratio of non-performing assets to capital fund and allowance for loan loss rose from 2.3 times in 2005 to 3.1 times as of September 2006, which was far over an average of 1.1 times for all 14 universal banks and the four special financial institutions (SFI).
The challenge for the bank going forward is to balance its mission to promote SMEs as a government-related entity and its efforts to improve operating performance and operating efficiency with standard risk management system and practices. The success is expected to help the bank stabilize its strategic position in the event the political environment changes in the future, said TRIS Rating. -- End
Small and Medium Enterprise Development Bank of Thailand (SME Bank)
Company Rating: Affirmed at AA-
Rating Outlook: Stable
-------------------------------------------------------
Copyright 2007, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.
The “stable” outlook reflects SME Bank’s influential status as one of the main policy banks that helps spur growth of the economy through long-term funding provided to SMEs. The outlook is premised on the expectation in the medium term that SME Bank’s new board of directors and management team will be able to improve its operating efficiency and establish culture of good corporate governance to effectively control internal operating losses. The outlook also reflects the expectation that SME Bank’s relationship with the government and related state entities, along with the financial support in the form of capital and subsidies from the government, is unlikely to change in the future.
TRIS Rating reported that SME Bank was established in 2002 under the Small and Medium Enterprise Development Bank of Thailand Act of Parliament B.E. 2545 (2002), to take over the SME-support function as well as finances and operations of the Small Industry Finance Corporation (SIFC), which was constituted under the Small Industry Finance Corporation Act B.E. 2534 (1991). Prior to the upgrade of SIFC into SME Bank, the MOF twice injected new capital into SIFC, and two years after the creation of SME Bank, the MOF added more equity. The succession of Bt2,500 million recapitalizations in October 2005 and MOF’s intention to inject Bt2,700 million additional capital to the bank in 2007 confirms the strong financial support the government provides to SME Bank to perform its policy role to support SME operators.
TRIS Rating said that SME Bank delivered significantly weak financial performance in the first nine months of 2006, which it posted a net loss of Bt388 million. A crucial problem was the increase in non-performing loans (NPL), which increased the bank’s expenses for additional provisions for possible loan loss by Bt712 million. SME Bank’s ratio of NPLs to average loans jumped from 23% in 2005 to 37% as of September 2006. However, 88% of NPLs were from loans originated before 2005. In 2005, SME Bank developed a risk management framework, but chronic inefficient practices and internal operation problems spurred operating inefficiency, and led the bank into the structural reorganization processes. Rising NPLs also deteriorated the bank’s cushion of capital funds and allowances for loan loss against bad debts. The ratio of non-performing assets to capital fund and allowance for loan loss rose from 2.3 times in 2005 to 3.1 times as of September 2006, which was far over an average of 1.1 times for all 14 universal banks and the four special financial institutions (SFI).
The challenge for the bank going forward is to balance its mission to promote SMEs as a government-related entity and its efforts to improve operating performance and operating efficiency with standard risk management system and practices. The success is expected to help the bank stabilize its strategic position in the event the political environment changes in the future, said TRIS Rating. -- End
Small and Medium Enterprise Development Bank of Thailand (SME Bank)
Company Rating: Affirmed at AA-
Rating Outlook: Stable
-------------------------------------------------------
Copyright 2007, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.