TRIS Rating Co., Ltd. has assigned the “A+” ratings for the proposed issues of Bt15,000 million and Bt5,000 million in senior debentures of Bank of Ayudhya PLC (BAY). At the same time, TRIS Rating has affirmed the company rating of BAY at “A+” and has also affirmed the rating of BAY’s subordinated debentures (BAY13NA) at “A”. The rating outlook is “positive”. The ratings reflect improved BAY’s profile, solid capital base, strong retail franchise value, and improving risk management, all of which have been enhanced by strategic support from GE Capital Asia Pacific Ltd. (GE), a foreign partner. This should help improve BAY’s business growth and profitability in the medium term. However, the ratings are constrained by the bank’s high legacy non-performing loans (NPL), and a less favorable economic and business environment, all of which might limit business growth and profitability of the bank.
The “positive” outlook reflects the expectation of a substantial improvement in BAY’s financial performance and its asset quality, particularly in profitability. In addition, the bank is expected to gain benefits from synergies with GE in terms of growing profitable assets and market share expansion in consumer banking. The prudent risk management practice to control asset quality is also essential for the bank under loans portfolio expansion period.
TRIS Rating reported that BAY’s strategy to leverage GE’s expertise in consumer banking will drive the bank to achieve both organic and inorganic growth. As part of the inorganic growth, BAY has completed the acquisition of GE Capital Auto Lease (GECAL), one of the leaders in auto hire purchase business in Thailand, in February 2008. In 2007, BAY improved its operational efficiency by investing in upgrading information technology (IT) infrastructure, branch expansion, and staff training. In addition, the bank has tackled its legacy NPLs, the major constraint of the bank’s credit rating, by implementing aggressive NPL resolution. In the fourth quarter of 2007, the bank entered into an NPL sales agreements worth approximately Bt9.8 billion, which represents 14% of the bank’s total NPLs. However, the success in addressing asset quality improvement and growing profitable loan portfolio will also depend on economic conditions and political stability.
TRIS Rating said, BAY is the fifth largest commercial bank in Thailand in terms of assets, with an 8.1% market share in loans and 8.4% in deposits as of December 2007. BAY’s major shareholders are the Ratanarak family, the bank’s foundation family, and GE, which held 26.5% and 34.7%, respectively as of January 2008. BAY’s profitability weakened substantially in 2007 due to huge provisions of Bt12.4 billion to comply with the new international accounting standard (IAS39), losses from debt restructuring, and the investment in IT systems, increased staff training costs and branch expansion. BAY’s ratio of non-performing to total loans deteriorated from 13.6% in 2006 to 15.5% as of December 2007, which is far above the industry average of 8.8% for the 12 universal banks. BAY’s non-performing assets (classified loans that are more than three months past due, outstanding amount of troubled debt restructuring and foreclosed property) were 1.3 times its capital fund and allowance for loan loss, improving from 1.9 times in 2006. This improvement was largely the result of the capital injection from GE.
The bank’s capital adequacy ratio improved from 11.67% at the end of 2006 to 20.35% at the end of 2007, following the capital injection from GE. In February 2008, acquisition of GECAL will reduce the bank’s capital adequacy ratio to 18%, with a hire purchase loans portfolio of about Bt78 billion. The large capital base will be sufficient for the bank to grow assets and high legacy NPL resolution, said TRIS Rating. -- End
Bank of Ayudhya PLC (BAY)
Company Rating: Affirmed at A+
Issue Ratings:
BAY13NA: Bt12,000 million subordinated debentures due 2013 Affirmed at A
Bt15,000 million senior debentures due 2010 A+
Bt5,000 million senior debentures due 2011 A+
Rating Outlook: Positive
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Copyright 2008, 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 “positive” outlook reflects the expectation of a substantial improvement in BAY’s financial performance and its asset quality, particularly in profitability. In addition, the bank is expected to gain benefits from synergies with GE in terms of growing profitable assets and market share expansion in consumer banking. The prudent risk management practice to control asset quality is also essential for the bank under loans portfolio expansion period.
TRIS Rating reported that BAY’s strategy to leverage GE’s expertise in consumer banking will drive the bank to achieve both organic and inorganic growth. As part of the inorganic growth, BAY has completed the acquisition of GE Capital Auto Lease (GECAL), one of the leaders in auto hire purchase business in Thailand, in February 2008. In 2007, BAY improved its operational efficiency by investing in upgrading information technology (IT) infrastructure, branch expansion, and staff training. In addition, the bank has tackled its legacy NPLs, the major constraint of the bank’s credit rating, by implementing aggressive NPL resolution. In the fourth quarter of 2007, the bank entered into an NPL sales agreements worth approximately Bt9.8 billion, which represents 14% of the bank’s total NPLs. However, the success in addressing asset quality improvement and growing profitable loan portfolio will also depend on economic conditions and political stability.
TRIS Rating said, BAY is the fifth largest commercial bank in Thailand in terms of assets, with an 8.1% market share in loans and 8.4% in deposits as of December 2007. BAY’s major shareholders are the Ratanarak family, the bank’s foundation family, and GE, which held 26.5% and 34.7%, respectively as of January 2008. BAY’s profitability weakened substantially in 2007 due to huge provisions of Bt12.4 billion to comply with the new international accounting standard (IAS39), losses from debt restructuring, and the investment in IT systems, increased staff training costs and branch expansion. BAY’s ratio of non-performing to total loans deteriorated from 13.6% in 2006 to 15.5% as of December 2007, which is far above the industry average of 8.8% for the 12 universal banks. BAY’s non-performing assets (classified loans that are more than three months past due, outstanding amount of troubled debt restructuring and foreclosed property) were 1.3 times its capital fund and allowance for loan loss, improving from 1.9 times in 2006. This improvement was largely the result of the capital injection from GE.
The bank’s capital adequacy ratio improved from 11.67% at the end of 2006 to 20.35% at the end of 2007, following the capital injection from GE. In February 2008, acquisition of GECAL will reduce the bank’s capital adequacy ratio to 18%, with a hire purchase loans portfolio of about Bt78 billion. The large capital base will be sufficient for the bank to grow assets and high legacy NPL resolution, said TRIS Rating. -- End
Bank of Ayudhya PLC (BAY)
Company Rating: Affirmed at A+
Issue Ratings:
BAY13NA: Bt12,000 million subordinated debentures due 2013 Affirmed at A
Bt15,000 million senior debentures due 2010 A+
Bt5,000 million senior debentures due 2011 A+
Rating Outlook: Positive
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Copyright 2008, 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.