MOODY'S PLACES RATINGS OF THREE THAI BANKS ON REVIEW FOR POSSIBLE DOWNGRADE
Hong Kong, 3/9/1997 -- Moody's placed the debt, deposit, and Bank Financial Strength Ratings of three Thai banks on review for possible downgrade. The three banks are Bank of Ayudhya (BAY), Siam City Bank (SCIB), and Thai Military Bank (TMB). Moody's said that the review is prompted by concerns about the impact that Thailand's weakening financial fundamentals, declining property and stock markets, deepening crisis in the finance company sector, and continuing economic slowdown will have on the three banks' asset quality, capital levels, and profitability.
Moody's said the problems in the property sector are likely to continue for the next several years. The current stock of property coupled with the new supply coming on the market in 1997 and 1998 exceeds anticipated demand by a significant margin. Furthermore, high domestic interest rates, which are being used to protect the baht by Thailand's central bank, the Bank of Thailand (BOT), are compounding the problems for the real estate sector, among others.
The rating agency noted that the anticipated drop in property values will have direct implications for the reserve levels of Thai banks. As Moody's has commented in the past, a significant portion of the reserve of Thai banks is in the form of real estate held as collateral. Since Thai banks do not carry general reserves or additional reserves on loans classified as "substandard" if the appraised value of the collateral is sufficient to cover loan outstandings, the decline in the value of the underlying collateral will require that banks take additional reserves.
Moody's noted that in the first week of March, 1997, the BOT announced several measures, including a requirement that financial institutions increase the level of loan loss reserves on loans classified as substandard. In Moody's view, these recent measures are a step in the right direction but more stringent requirements will be necessary to restore confidence in the regulation and supervision of Thai banks.
Moody's noted that the transparency of Thai financial statements is generally poor. Thai banks are allowed a degree of regulatory forbearance in such items as the need to create loan loss reserves and regarding the non-accrual of loans. Furthermore, Thai banks do not currently disclose their level of non-performing loans although the BOT has announced that it will require banks to disclose information regarding asset quality with their June 30, 1997 financial statements. The BOT did disclose, however, that as of June, 1996, the NPL level of Thai banks stood at 7.7%.
As Moody's has commented in the past, liquidity in the banking markets remains tight system-wide and is a significant risk. During the recent period of turbulence, interbank rates have spiked to approximately 30% and have been extremely volatile. The banks generally have high loan-to-deposit ratios in excess of 100%, often with external financing of short-term debt. On the positive side Moody's noted that Thai banks benefit from good lending margins --systemwide, the average is more than 3.5%--and a supportive regulatory environment. These factors will help the banks generate the core profits to absorb the potential losses which may materialize as well as maintain confidence in the banking sector.
The following ratings are on review for possible downgrade:
Bank of Ayudhya : The Baa1 deposit rating, the Prime-2 short-term deposit rating, the Baa1 senior debt rating, the Baa2 subordinated debt rating and the Bank Financial Strength Rating of D+.
Siam City Bank: The Baa2 deposit rating, the Baa2 senior debt rating, the Baa3 subordinated debt rating and the Bank Financial Strength Rating of D.
Thai Military Bank: The Baa2 deposit rating, the Prime-2 short-term deposit rating, The Baa2 senior debt rating, the Baa3 subordinated debt rating, and the Bank Financial Strength Rating of D.
The following rating is confirmed:
Siam City Bank --The Prime-3 rating on the bank's short-term deposits.
Moody's said that all three banks are based in Bangkok.
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