TRIS Rating Co., Ltd. has affirmed the company rating of Bank of Ayudhya PLC (BAY) at “AA-”, and has also affirmed the ratings of BAY’s senior debentures and subordinated debentures at “AA-” and “A+”, respectively. At the same time, TRIS Rating has assigned BAY’s proposed issue of up to Bt20,000 million in subordinated debentures at “A+”. The outlook remains “stable”. The ratings reflect a continuing improvement of BAY's market position in core businesses, financial performance and asset quality, and a growing franchise value. The ratings are also enhanced by the continuous support from GE Capital International Holdings Corporation (GECIH), the largest shareholder owning a 33% stake in BAY. However, the ratings are constrained by high legacy non-performing assets (NPA), more intense competitive environment in the banking business, and uncertainty in domestic political and global financial situations, which might limit the bank’s business growth and profitability.
The “stable” outlook reflects the expectation that BAY will be able to sustain its business and financial performance and also improve asset quality in the medium term. In addition, the bank is expected to continue to gain benefits from synergies with GE in terms of growing a profitable loan portfolio and a rising market share in retail banking, which will strengthen the bank’s franchise value in the long term.
TRIS Rating reported that BAY is the fifth largest commercial bank in Thailand, with a 9% market share in assets, 10% in loans and 8% in deposits as of March 2010. In addition, BAY’s total consolidated assets were Bt821,613 million, up by 12% from Bt601,985 million as of March 2009. The strategy to leverage GE’s expertise in retail banking helped BAY achieve both organic growth and growth through acquisitions in 2008 and 2009. BAY acquired auto loan portfolio worth Bt75.3 billion from Ayudhya Capital Auto Lease PLC (AYCAL) in February 2008, followed by the acquisition of Bt23.4 billion of retail loans, credit card loans and micro loans from three core subsidiaries of American International Group, Inc. (AIG) in April 2009 and September 2009. In addition, BAY completed the acquisition of Bt45.8 billion retail loan portfolio from GE Money Thailand (GEMT) in November 2009.
The acquisitions have strengthened BAY’s market position in the retail banking business, and diversified its retail portfolio with more high-yield loans (auto hire purchase, credit cards and personal loans). As of March 2010, BAY’s retail banking comprised 42% of total loans, up from 22% in 2007, while the portions of corporate loans and SME loans to total loans reduced proportionally to 30% and 28%, respectively, from 34% and 44%. For the retail banking, BAY became the largest credit card operator, the second largest auto loan provider and the largest used car financing operator in Thailand.
TRIS Rating said, BAY has benefited from know-how and system transfer after being partnership with GE Group. BAY succeeded in building the foundation during 2007-2009. The bank has been implementing the phase of optimization and growth acceleration during 2010-2012, focusing on the full integration of the BAY Group and the enhancement of cross-selling capabilities. This achievement is expected to strengthen the bank’s franchise value in the long term. However, the management team remains focused on enhancing operating efficiency, improving asset quality, and growing stable profitable assets amid uncertainty in changes of banking operating environments and regulations in the future.
In terms of asset quality, BAY succeeded in resolving legacy non-performing loans (NPL) and demonstrated an improvement in asset quality control. The ratio of classified loans with more than three months overdue to total loans improved from 10.6% as of March 2009 to 8.4% as of March 2010. BAY’s non-performing assets (classified loans with more than three months overdue, the outstanding amount of troubled debt restructuring and foreclosed property) were 0.86 times capital funds and the allowance for doubtful accounts as of March 2010. The ratio is in line with the average ratio for the top-six universal banks. This indicates the bank has a sufficient cushion of capital funds and allowance for doubtful accounts to absorb unexpected deterioration in asset quality.
On the funding side, BAY has diversified funding sources to better match the asset and liability structure. As of March 2010, total funding was Bt774,203 million, of which 69% was deposits, followed by borrowings from interbank and money markets (8%); long-term borrowings, mostly debentures issues (6%); short-term borrowings and bills of exchange issues (5%); and shareholders’ equity (12%). Of the total deposits as of March 2010, current and savings deposits accounted for 39%, up from 33% in 2008, and 61% were fixed-rate time deposits.
BAY has a strong capital fund to support business expansion and absorb unexpected losses from risks associated with adverse changes in the operating environment in the medium term. The ratio of shareholders’ equity to total assets slightly declined from 11.75% as of March 2009 to 11.53% as of March 2010, due mainly to a rapid loan expansion from acquisitions. The BIS ratio also decreased from 15.57% to 14.50%, which was a bit lower than an average of 15.65% for the top-six universal banks. Proceeds from the proposed subordinated debentures will be used as long-term funds to support the bank’s aggressive growth strategies in corporate, SME and retail banking businesses, and will also strengthen the bank’s Tier-2 capital funds.
Profitability in 2009 and the first quarter of 2010 further improved from 2008. Net profits were Bt6,659 million in 2009, a jump of 55% from 2008. For the first quarter of 2010, BAY reported net profits of Bt2,070 million, or double Bt1,037 million for the first quarter of 2009. The improvement in profitability was mainly due to the growing of higher profitable assets and cost reduction initiatives. Return on average assets and return on average equity were 0.87% and 7.44% in 2009, respectively, up from 0.61% and 5.23% in 2008. The ratios also improved in the first quarter of 2010, compared with the same period of 2009, which increased to 0.26% and 2.21%, respectively, from 0.14% and 1.20%, said TRIS Rating. -- End
Bank of Ayudhya PLC (BAY)
Company Rating: ..... Affirmed at AA-
Issue Ratings:
BAY106A: Bt16,844 million senior debentures due 2010 ..... Affirmed at AA-
BAY116A: Bt5,049 million senior debentures due 2011 ..... Affirmed at AA-
BAY13NA: Bt12,000 million subordinated debentures due 2013 ..... Affirmed at A+
Up to Bt20,000 million subordinated debentures due within 2020 ..... A+
Rating Outlook: ..... Stable
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