Published on 14 Aug 2018.
RAM Ratings has reaffirmed the AA1/Stable rating of Krung Thai Bank Public Company Limited's (KTB or the Group) Proposed Senior MTN Programme, as well as the AA2/Stable rating of its Tier-2 Subordinated Notes Programme (2015/2045). Both programmes have a combined limit of RM5 billion.
The ratings incorporate our expectation of a high likelihood of support from the government of Thailand (GoT), rated AA1(pi)/Stable/P1(pi). The Kingdom's third-largest lender (by gross loans and deposits), the Group is designated as a domestic systemically important bank (D-SIB). KTB is 55%-owned by the Financial Institutions Development Fund (a unit of the Bank of Thailand), making it the only commercial bank in the country that is majority-owned by the government.
KTB's funding profile benefits from its extensive branch network and close relationships with the GoT and state-owned enterprises. The Group's strong deposit funding capabilities are evidenced by its large base of current and savings account deposits, which make up more than 70% of customer deposits. In addition, KTB's Basel III liquidity coverage ratio and net stable funding ratio are both well above 100%. The Group's loans-to-deposits ratio stood at 89% as at end-June 2018.
KTB's asset quality has been deteriorating since 2015. Its gross impaired-loan (GIL) ratio had increased further to 5.6% as at end-June 2018 (end-December 2016: 4.8%), having been affected by a lumpy default and the rice-milling segment in 2017. The Group made full provision against the lumpy exposure, resulting in an elevated credit-cost ratio of 2.2% in 2017 (2016: 1.7%), which had retreated to a still-high 1.4% (annualised) in 1H fiscal 2018. As economic recovery in Thailand remains uneven, some asset quality pressure is likely to linger. On balance, KTB's hefty provisioning had kept its GIL coverage ratio at a sound 124% as at end-June 2018.
Substantial impairment charges caused KTB's pre-tax profit to plunge 29% from THB41 billion to THB29 billion in fiscal 2017, translating into a return on risk-weighted assets of only 1.4% (fiscal 2016: 2.0%). While pre-tax profit came in higher y-o-y at THB20 billion in 1H fiscal 2018 (1H fiscal 2017: THB15 billion) due to a low-base effect (the aforementioned lumpy provision was incurred in 1H fiscal 2017), it still faces earnings headwinds from a lower reference lending rate (since May 2017) and fee waiver for certain electronic transactions (since March 2018).
KTB's Basel III common equity tier-1 capital ratio had been further strengthened to 13.4% as at end-December 2017 (end-December 2016: 12.4%), which provides a strong buffer against potential slippage in asset quality. This ratio is also comfortably above the final regulatory requirement of 8%, which includes a 1% surcharge for D-SIBs.
Analytical contact
Lim Yu Cheng, CFA, FRM
(603) 7628 1188
yucheng@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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