TRIS Rating Co., Ltd. has assigned the “A” rating to the proposed issue of up to Bt6,000 million in subordinated debentures of Thanachart Bank PLC (TBANK). At the same time, TRIS Rating has affirmed the company rating of TBANK at “A+” and has also affirmed the ratings of TBANK’s subordinated debentures and hybrid debt capital securities at “A” and “A-”, respectively. The outlook remains “positive”. The company rating at “A+” and the subordinated debentures ratings at “A” reflect TBANK’s strong business profile, enhanced by its management’s capability and experience in core business, hire purchase, and its enlarged networks and appropriate business platform to strengthen Thanachart Group’s business synergy. The ratings are also enhanced by the strong credit profile of TBANK’s strategic partner, Bank of Nova Scotia (BNS) from Canada, which holds a 48.99% stake in TBANK. The ratings also reflect the expectation that TBANK’s business profile will be strengthened after consolidating the loan portfolio and deposit base of Siam City Bank PLC (SCIB) into the Thanachart Group. However, these strengths are constrained by the uncertainty in domestic political situation and changes in banking business climate, uncertainty in the securities industry, and transition risk during the merger period between SCIB and TBANK, which might limit the group’s business expansion and profitability in the next few years.
The “A-” ratings for TBANK’s hybrid debt capital securities (TBANK197A and TBANK247A) reflect both the subordination and payment deferral risks of the issues. The hybrid debt capital securities are respectively due in 2019 and 2024, and are cumulative, junior subordinated, unsecured, and callable before maturity dates by the bank after five years under the approval from the Bank of Thailand. The holders of hybrid debt capital securities will be subordinated to depositors and holders of senior debts and subordinated debts of the bank. The bank will not be obliged to make any payment in the event that the bank posts net losses for the same six-month period during which any interest payment would be due or payable and the bank is unable to pay dividend during such period or during the next six months, but coupon payment will be cumulative.
The “positive” outlook recognizes TBANK’s designated role as the group’s core financial and banking operator. The outlook reflects the expectation that TBANK’s market position in the banking industry on a consolidation basis will be strengthened, with more diversified loan structure and deposit base. The outlook also reflects a significant improvement of TBANK’s capital base, following the bank’s recapitalization to prepare for the acquisition of a 100% ownership in SCIB.
TRIS Rating reported that as of 31 December 2009, TBANK’s shareholding stake of 50.92% was held by Thanachart Capital PLC (TCAP) and 48.99% by BNS. From the total estimated acquisition cost of Bt68.7 billion for a 100% ownership in SCIB, Bt35.8 billion will be funded by new capital injection into TBANK according to the shareholding stake from the bank’s parents, TCAP and BNS; Bt7.1 billion from hybrid Tier-1 securities; Bt6 billion from Tier-2 subordinated debentures; and the remaining from TBANK’s cash on hand.
TBANK’s consolidated assets was Bt433 billion as of December 2009, while SCIB’s was Bt424 billion. After the consolidation, TBANK will be ranked 5th (from 8th) among 14 Thai universal banks. TBANK also benefits from business synergy with SCIB as both have different customer market segments. About 80% of TBANK’s loan portfolio was consumer loans, while 67% of SCIB’s loan portfolio was corporate loans. After the consolidation, TBANK will have a better loan portfolio mix between consumer loans and corporate loan of 60% and 40%, respectively. On the liability side, SCIB’s diversified and stable deposit base is expected to enhance TBANK’s funding base in the future. However, a transition during the merger period in the next one and a half years will be closely monitored.
As of December 2009, TBANK’s consolidated loans were Bt286 billion, up 3.4% from Bt276 billion as of December 2008. Of the total loans, auto hire purchase lending accounted for 74% (Bt210 billion). Profitability improved markedly in 2009, with net profits of Bt4,056 million or more than double of the Bt1,870 million net profits in 2008. Its interest spread had been improving from 3.1% in 2008 to 3.5% in 2009. TBANK’s revenue base has been more diversified. Non-interest income accounted for 20% of total income (up from 19% in 2008), due mainly to steady contribution of net revenue from insurance business. The return on average assets and the return on average equity in 2009 were 1.0% and 16.5%, up from 0.6% and 8.8% in 2008, respectively.
Regarding TBANK’s funding structure, the bank has significantly expanded the size of savings deposits with more diversified retail deposits. The savings deposits are considered a stable and cheap funding source for commercial banks. As of December 2009, the bank’s total deposits slightly decreased by 1.4% from 2008, as some deposit base was shifted into the form of short-term bills of exchange. Of the total deposits (Bt266 billion), savings accounts were 31%, up from 27% in 2008.
The bank’s BIS ratio according to the Basel II standard increased from 11.18% in 2008 to 14.10% in 2009, due to internal growth of its operating income and stronger Tier-2 after the bank issued Bt5 billion of the upper Tier-2 hybrid capital securities in July 2009. The capital fund will be stronger after the bank issues the proposed subordinated debentures of up to Bt6 billion, injects the new Bt35.8 billion capital and issues the Bt7.1 billion hybrid Tier-1 securities in April 2010. TBANK’s ratio of non-performing assets (classified loans with more than three months overdue, outstanding amount of troubled debt restructuring and foreclosed property) was only 0.3 times its capital fund and allowance for doubtful account during 2007-2009, which was far better than the average 0.8 times for the 12 Thai universal banks. This provides TBANK with sufficient cushion against downside risk from adverse changes in operating environment, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Ratings: TBANK155A: Bt5,000 million subordinated debentures due 2015 Affirmed at A TBANK194A: Bt2,000 million subordinated debentures due 2019 Affirmed at A TBANK197A: Bt3,500 million hybrid debt capital securities due 2019 Affirmed at A- TBANK247A: Bt1,500 million hybrid debt capital securities due 2024 Affirmed at A- Up to Bt6,000 million subordinated debentures due 2020 A Rating Outlook: Positive
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