MOODY'S LOWERS BANK FINANCIAL STRENGTH RATINGS OF BANK OF AUYDHYA AND GOVERNMENT HOUSING BANK OF THAILAND; RAISES SUBORDINATED DEBT RATING OF BANK OF ASIA.
Moody's Investors Service lowered the bank financial strength ratings of Bank of Ayudhya (from E+ to E) and Government Housing Bank of Thailand (from D+ to E+). The ratings had been placed on review for possible downgrade in January 1999. The debt and deposit ratings of the banks were confirmed. Moody's also raised the long-term subordinated debt rating of Bank of Asia from B3 to Ba2: the rating had been placed on review for possible upgrade in September 1998 following the completion of the acquisition by ABN AMRO Bank N.V. Bank of Asia's bank financial strength rating of E was confirmed.
Moody's said that its actions in respect of the downgrades reflect the continued pressures on the capital and asset quality of the Thai banks. Although the government's actions, including the August 1998 measures for the banking system, stemmed the immediate crisis, the recapitalisation of banks and the restoration of full solvency remains a distant prospect under the current programmes. The fragility of the banking system continues to place Bank of Ayudhya (as other mid-sized banks) in a vulnerable position as the source of additional capital to support the bank remains uncertain. The recent issue of hybrid preferred stock/subordinated debt instruments by Bank of Ayudhya and other Thai banks represents, in Moody's opinion, capital of doubtful value and high cost. Moreover, the amounts are relatively small, and it remains the view of the rating agency that much larger sums will be needed to truly restore solvency.
Moody's said that Government Housing Bank's residential housing loans are of intrinsically higher quality than the average credits of the banking system, but that its loan losses are nevertheless likely to rise sharply as the bank's politically sensitive position as a government institution impedes its loan collection efforts and prudent lending policies. Moreover, the bank has suffered large foreign currency losses in its liability structure, although Moody's believes that its capital position will be firmly supported by the Thai government. The government is reviewing the activities and the future role of the specialised government banks, including Government Housing Bank, but Moody's expects official support to remain very strong for the duration of the present crisis given the government's belief that these institutions play a vital role in extending credit to sensitive areas of the economy - in the Bank's case the housing market.
Moody's noted that Bank of Asia's capital position had been significantly strengthened by the capital injection by ABN AMRO Bank N.V. in September 1998, for which a 75% interest was obtained, but that the bank's level of capital and loan loss reserves still remained very weak. Nevertheless, the rating agency believes that the commitment of the bank's very large and financially very strong new parent (rated Aa2, Prime-1 for its deposits and senior debt, and B+ financial strength) will extend to providing additional capital to its subsidiary when needed for regulatory reasons and, ultimately, to provide a firm foundation for the future development of Bank of Asia's business in a considerably altered future Thai financial system. In particular, this support provides a firm base for Bank of Asia's long term subordinated debt obligations: the residual risk of these instruments is (aside from the risk of a sovereign moratorium on foreign currency obligations, captured in the country ceiling rating) the possibility that some further government restructuring and recapitalisation plan for the Thai banking system could include a mandatory change in the terms of banks' subordinated obligations. However, Moody's believes that the likelihood that such a plan, even if implemented, need not and would almost certainly not, include the subordinated obligations of Bank of Asia if, as Moody's believes, its ultimate parent stands ready to support these obligations.
The following ratings were affected:
Bank of Ayudhya -- the bank financial strength rating was lowered from E+ to E. The ratings of the bank for its deposits of B1 (long-term) and Not Prime (short-term), and the ratings of its long-term debt of B1 (senior) and B3 (subordinated), were confirmed.
Government Housing Bank -- the bank financial strength rating was lowered from D+ to E+. The ratings of the bank for its deposits of B1 (long-term) and Not Prime (short-term), and the Ba1 rating of its senior long-term debt guaranteed by the Kingdom of Thailand, were confirmed.
Bank of Asia - the long-term subordinated debt rating was raised from B3 to Ba2, The bank financial strength rating of E, and the ratings of the bank for its deposits of B1 (long-term) and Not Prime (short-term), were confirmed.
Bank of Ayudhya is the fifth-largest bank in Thailand, and reported total assets at end-1998 of Baht 483 billion (approximately $13 billion).
Government Housing Bank is a specialised bank wholly owned by the Thai government, and reported total assets at end-1997 of Baht 294 billion (approximately $8 billion).
Bank of Asia is the ninth-largest bank in Thailand, and currently 75%-owned by ABN AMRO Bank N.V. of the Netherlands. It reported total assets at end-1998 of Baht 149 billion (approximately $4 billion).
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