TRIS Rating Co., Ltd. has affirmed the company rating of Mega International Commercial Bank PLC (Mega ICBC) at “A+” and has affirmed the bank’s short-term issue rating at “T1” with “stable” outlook. The company rating is enhanced from Mega ICBC’s standalone rating, as it is a core strategic subsidiary of Mega ICBC, Taiwan, in penetrating into the Asia Pacific region. Mega ICBC’s standalone rating is based on its strong market position in lending to Taiwanese investors as the only Taiwanese bank in Thailand, its good asset quality, its strong capitalization and continued improvement in risk management and internal control systems. The rating is partially constrained by Mega ICBC’s limited franchise value and network in Thailand, compared with other well-established local commercial banks. Limited prospects for Taiwanese investment in Thailand and a less favourable operating environment are factors that limit Mega ICBC’s loan portfolio growth in the medium term.
The short-term issue rating reflects the long-term credit profile of the bank at “A+”, which considers the bank as an important strategic subsidiary of its parent bank in Taiwan. The short-term rating also reflects the bank’s ability to access liquidity sources due to the nature of commercial banks having high liquid assets on their balance sheet and an easy access to diversified funding sources. Mega ICBC’s liquidity is supported by one-day access to credit lines from its parent bank, interbank markets, the bond repurchase market and the BOT’s loan windows. In addition, Mega ICBC also has an access to credit lines from the Central Bank of China (Taiwan), which Mega ICBC reserves as a last liquidity resort. This line normally takes one week to access.
The “stable” outlook reflects the likelihood that Mega ICBC will deliver a medium-term financial performance as expected, by leveraging its parent’s franchise to enhance its business expansion in the Thai commercial banking industry. The outlook is also based on the expectation that Mega ICBC will maintain its role as an important strategic subsidiary of its parent bank. Being a subsidiary of a foreign bank benefits Mega ICBC in terms of expanded scope of business and financial flexibility and liquidity. Strong support from its parent and its strong capital fund are expected to help mitigate future downside risks from uncertain economic and financial situations, both locally and globally.
TRIS Rating reported that Mega ICBC, which was granted a foreign bank subsidiary license by the Ministry of Finance (MOF) of Thailand in August 2005, is a wholly-owned subsidiary of Mega International Commercial Bank in Taiwan (Mega ICBC, Taiwan). Before being granted the license, the bank had operated as a full foreign bank branch in Bangkok since 1947. Mega ICBC is highly integrated to its parent’s operational system, business model and strategies, and also leverages on its parent bank’s brand name. The bank’s customer base partly stems from the strong relationship between its parent and Taiwanese corporations that have invested or that have subsidiaries in Thailand. Back-up credit lines from its parent bank provide Mega ICBC with sufficient liquidity and financial flexibility. Mega ICBC, Taiwan is currently rated by Moody’s Investors Service (Moody’s) at “A1” with a “stable” outlook and by Standard and Poor’s (S&P) at “A” with a “negative” outlook”. The ratings were supported by its leading position in foreign exchange and trade finance markets, good asset quality, high liquidity and implicit support from the Taiwanese government.
As a new and small commercial bank, TRIS Rating said that Mega ICBC has limited franchise value compared with large local commercial banks. The bank has a small-sized banking network and limited banking services. As a foreign bank subsidiary, Mega ICBC is limited by the regulation to have no more than four branches. As of June 2008, this foreign bank subsidiary’s total assets were Bt13,035 million, which was the smallest size among all 14 Thai universal banks, with a market share of only 0.2%. The bank serves a niche market of Taiwanese-based and Taiwanese-related business clients operating in Thailand. Currently, the bank’s lending to Taiwanese clients in Thailand accounted for about 80% of its total loan portfolio.
The bank’s profitability for the first half of 2008 improved from 2007, because in 2007 the bank had to set an additional amount of allowance for doubtful accounts to comply with new international accounting standards (IAS 39). The bank reported a net profit of Bt141 million for the first half of 2008, significantly higher than Bt67 million for the same period in 2007. Non-annualized return on average assets and on average equity were 1.12% and 3.15%, respectively, for the first half of 2008, which were far higher than 0.57% and 1.59% for the first half of 2007.
Mega ICBC had good asset quality. As of June 2008, the bank’s ratio of non-performing loans (NPL) to total loans according to the Bank of Thailand’s (BOT) definition was 3.16%. From TRIS Rating’s calculation, Mega ICBC’s ratio of NPLs to average loans was 3.28% as of June 2008, far lower than the average ratio of 8.37% for all 14 Thai universal banks. In the near to medium term, asset quality deterioration is a major concern due to an expected decline in credit profile of corporate customers in industrial manufacturing sector, particularly automobile- and commodity-related industries. In addition, the bank has exposed to high credit risk concentration on top-20 large customers, which accounted for 47% of total loans. However, the bank’s larger capital base is expected to provide sufficient cushion to absorb losses from future downside risks. As of June 2008, its capital adequacy ratio was 36.35%. The ratio is expected to decline slightly when Mega ICBC fully implements according to the BASEL II by the end of 2008, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Rating: Bt3,000 million short-term debentures Affirmed at T1 Rating Outlook: Stable
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