RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of CIMB Thai Bank Public Company Limited (the Bank)

Published on 16 June 2016

RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of CIMB Thai Bank Public Company Limited (the Bank). Concurrently, the AA3/Stable rating of the Bank’s RM2 billion Tier-2 Subordinated Debt Programme has also been reaffirmed.

CIMB Thai is a strategically important entity to CIMB Group, playing a key role as the Group’s Thai franchise within its ASEAN gambit. CIMB Group’s commitment to the Bank is reflected in its almost-100% ownership, the sharing of a common franchise, management oversight, operational alignment and the Group’s track record of capital infusions (most recently demonstrated in 4Q 2015). The Bank is expected to be able to count on strong parental support in times of stress.

RAM anticipates 2016 to be another challenging year for CIMB Thai. The Bank’s significantly enlarged pool of special-mention loans (i.e. delinquencies more than 30 days past due but yet to turn impaired), arising from its retail and commercial lending books, suggests rising credit stress amid the sluggish economy. However, the Bank is now better capitalised as a result of a timely capital-raising exercise last year. Its tier-1 and total capital ratios stood at 10.8% and 15.0%, respectively, as at end-March 2016. In addition, the Bank has allocated additional provisions above Bank of Thailand’s minimum requirements, which partly contributed to its lofty annualised credit-cost ratio of 2.3% in 1Q FY Dec 2016. CIMB Thai is expected to maintain its loan-loss coverage at above 100% in the near term (end-March 2016: 115.9%). The Bank’s improved loss-absorption buffer should moderate its downside risks.

CIMB Thai has a healthy liquidity profile, with a liquidity coverage ratio of 133% as at end-fiscal 2015. Its liquidity is also enhanced by a contingency liquidity line from CIMB Group. These considerations balance the Bank’s significant reliance on wholesale funding, as evidenced by its high loans-to-deposits ratio of above 100%. CIMB Thai’s customer deposit funding ability is weaker than peers and reflects its small – but growing – domestic franchise. On the other hand, the Bank also relies on wholesale funding options such as long-term debentures and structured products for its funding needs. Moreover, CIMB Thai’s profitability still lags behind its peers’, weighed down by high impairment charges and hefty operating costs. In FY Dec 2015, its return on risk-weighted assets only came up to 0.6%.

Media contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my