TRIS Rating Co., Ltd. has assigned a rating to the proposed issue of up to Bt5,000 million in senior debentures of Kiatnakin Bank PLC (KK) at “A-”. At the same time, TRIS Rating has affirmed KK’s company and current issue ratings at “A-”. The rating outlook remains “stable”. The ratings reflect KK’s acceptable retail banking position, experienced management team, and the capability to maintain profitability. The bank’s ability to diversify into other businesses to replace its fading distressed asset management business is reflected in its constant asset growth. KK’s strong cushion of capital enables it to absorb risks from adverse changes in the banking business environment and from asset quality deterioration. However, the ratings are constrained by high delinquent loans, its small-sized banking model and limited distribution channels compared with subsidiaries of large banks, which may impact its long-term competitiveness. In addition, vulnerability to intense competition in retail banking business and exposure to high risk portfolio might limit KK’s business growth and profitability in the future.
The “stable” outlook reflects the expectation that KK will be able to sustain its profitability amid a dynamic financial environment that will see regulatory change in the medium term, and will be able to improve asset quality as a result of the bank’s strategy to expand into good quality assets. The rating outlook also reflects the bank’s ability to maintain sufficient capital fund to support the risk of asset devaluation from the result of economic instability. However, if asset quality deteriorates significantly, it will negatively impact the bank’s outlook or ratings.
TRIS Rating reported that KK’s distressed assets and foreclosed property portfolio will wind down over the next 2-7 years. Management has shifted its focus to growing assets by extending loans in high yield products such as hire purchase and residential project loans. As of the first quarter of 2008, total loans grew 8.7% from the end of December 2007, mainly from hire purchase lending, which accounted for 68% of loans outstanding, or 50% of total assets. Residential project loans had been stabilized and decreased by about Bt1.6 billion as of 31 March 2008, leading to 18% of total loans, or 13% of total assets. The bank’s three main businesses (investment in distressed assets, hire purchase loans, and residential project loans) have enabled KK to generate income and sustain high yields. KK’s ratio of classified loans (sub-standard, doubtful and doubtful loss) to total loans improved from 12.3% as of December 2007 to 10.6% as of 31 March 2008. However, this is far above the industry average for the 12 universal banks, whose ratios of NPLs to total loans were 8.62% as of 31 March 2008.
KK’s asset quality has been adversely impacted by residential project loans. Classified loans from residential projects accounted for 65% of total classified loans (Bt5 billion out of the total Bt7.7 billion as of 31 March 2008). KK’s non-performing assets (classified loans with more than three months pass due, outstanding amount of troubled debt restructuring and foreclosed property) were 0.87 times its capital fund and allowance for loan loss as of 31 March 2008, compared with the ratio of 0.81 times of the industry average for the 12 universal banks. As KK engages in high risk-high return lending, especially residential project loans, therefore, to maintain strong cushions of capital and loan loss allowances is crucial to mitigate the bank’s future downside risks. At the end of March 2008, KK’s BIS ratio was 15.4%, said TRIS Rating. -- End
Kiatnakin Bank PLC (KK)
Company Rating: Affirmed at A-
Issue Ratings:
KK08NA: Bt1,580 million senior debentures due 2008 Affirmed at A-
KK095A: Bt600 million senior debentures due 2009 Affirmed at A-
KK09NA: Bt920 million senior debentures due 2009 Affirmed at A-
KK09NB: Bt2,034 million senior debentures due 2009 Affirmed at A-
KK105A: Bt2,131 million senior debentures due 2010 Affirmed at A-
KK10NA: Bt966 million senior debentures due 2010 Affirmed at A-
KK115A: Bt1,289 million senior debentures due 2011 Affirmed at A-
Up to Bt5,000 million senior debentures due 2011 A-
Rating Outlook: Stable
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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 “stable” outlook reflects the expectation that KK will be able to sustain its profitability amid a dynamic financial environment that will see regulatory change in the medium term, and will be able to improve asset quality as a result of the bank’s strategy to expand into good quality assets. The rating outlook also reflects the bank’s ability to maintain sufficient capital fund to support the risk of asset devaluation from the result of economic instability. However, if asset quality deteriorates significantly, it will negatively impact the bank’s outlook or ratings.
TRIS Rating reported that KK’s distressed assets and foreclosed property portfolio will wind down over the next 2-7 years. Management has shifted its focus to growing assets by extending loans in high yield products such as hire purchase and residential project loans. As of the first quarter of 2008, total loans grew 8.7% from the end of December 2007, mainly from hire purchase lending, which accounted for 68% of loans outstanding, or 50% of total assets. Residential project loans had been stabilized and decreased by about Bt1.6 billion as of 31 March 2008, leading to 18% of total loans, or 13% of total assets. The bank’s three main businesses (investment in distressed assets, hire purchase loans, and residential project loans) have enabled KK to generate income and sustain high yields. KK’s ratio of classified loans (sub-standard, doubtful and doubtful loss) to total loans improved from 12.3% as of December 2007 to 10.6% as of 31 March 2008. However, this is far above the industry average for the 12 universal banks, whose ratios of NPLs to total loans were 8.62% as of 31 March 2008.
KK’s asset quality has been adversely impacted by residential project loans. Classified loans from residential projects accounted for 65% of total classified loans (Bt5 billion out of the total Bt7.7 billion as of 31 March 2008). KK’s non-performing assets (classified loans with more than three months pass due, outstanding amount of troubled debt restructuring and foreclosed property) were 0.87 times its capital fund and allowance for loan loss as of 31 March 2008, compared with the ratio of 0.81 times of the industry average for the 12 universal banks. As KK engages in high risk-high return lending, especially residential project loans, therefore, to maintain strong cushions of capital and loan loss allowances is crucial to mitigate the bank’s future downside risks. At the end of March 2008, KK’s BIS ratio was 15.4%, said TRIS Rating. -- End
Kiatnakin Bank PLC (KK)
Company Rating: Affirmed at A-
Issue Ratings:
KK08NA: Bt1,580 million senior debentures due 2008 Affirmed at A-
KK095A: Bt600 million senior debentures due 2009 Affirmed at A-
KK09NA: Bt920 million senior debentures due 2009 Affirmed at A-
KK09NB: Bt2,034 million senior debentures due 2009 Affirmed at A-
KK105A: Bt2,131 million senior debentures due 2010 Affirmed at A-
KK10NA: Bt966 million senior debentures due 2010 Affirmed at A-
KK115A: Bt1,289 million senior debentures due 2011 Affirmed at A-
Up to Bt5,000 million senior debentures due 2011 A-
Rating Outlook: Stable
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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.