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 been reaffirmed.

Published on 05 August 2015

CIMB Thai is a strategically important entity to CIMB Group, playing a key role as the Group’s Thai franchise within its ASEAN strategy. CIMB Group’s commitment to CIMB Thai is reflected in its almost-100% ownership, the sharing of a common franchise, management oversight, operational alignment, the availability of contingency liquidity support and the Group’s track record of capital infusions. The Bank is expected to be able to count on strong parental support in times of stress.
RAM anticipates CIMB Thai to be challenged by several more quarters of asset-quality slippage while also maintaining sufficient loan-loss buffers to absorb higher credit costs. Amid weak economic conditions, the Bank’s gross impaired-loan (GIL) ratio had jumped up to 4.1% as at end June 2015 (end-December 2013: 2.9%), with bad loans stemming from its commercial and retail books. On balance, the Bank has built up sufficient loan-loss reserves; its GIL coverage ratio came up to a healthy 93.7% as at end-June 2015. In 1Q 2015, the Bank allocated additional provisions above what is required in anticipation of a prolonged economic slowdown, which partly contributed to its lofty credit-cost ratio. Adjusting for such special provisions, the Bank’s credit-cost ratio would have stood at 1.4% in 1Q 2015 (unadjusted ratio: 2.2%). CIMB Thai had made a similar provision (amounting to THB1.3 billion) in FY Dec 2013.
CIMB Thai has a healthy liquidity profile, with a liquidity coverage ratio of 141.5% as at end-March 2015. This moderates the Bank’s high loans-to-deposits ratio of 99% as at end-March 2015. On the other hand, the Bank’s funding ability is weak and reflects its small but growing domestic franchise. CIMB Thai’s profitability still lags behind its peers’, weighed down by hefty impairment charges and high operating costs. Continuous franchise building will keep operating costs elevated. In 1H 2015 the Bank’s annualised ROA and ROE came in at a respective 0.3% and 3.8%.

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