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Rating Action:

Moody's affirms BAY's Baa2 rating; changes outlook to positive

03 Jul 2013

Singapore, July 03, 2013 -- Moody's Investors Service has affirmed the Baa2/P-2 foreign currency deposit rating of Bank of Ayudhya (BAY).

Moody's has also changed the rating outlook to positive from stable.

In addition, Moody's has affirmed the bank's D+ bank financial strength rating (BFSR), which maps to a ba1 baseline credit assessment (BCA). The outlook on the BFSR is stable.

Today's rating action was prompted by the Bank of Tokyo-Mitsubishi UFJ's (BTMU, Aa3 stable; C/a3 stable) announcement on 2 July 2013 of its plan to acquire a majority equity stake in BAY. In the announcement, BTMU has agreed to purchase GE Capital International Holdings Corporation's (unrated) 25% stake in BAY and will then make a voluntary tender offer that could take its total stake in the bank up to 75%. The acquisition will be entirely settled in cash and BTMU has announced no plan to raise any capital to fund the transaction. BTMU expects to close the transaction by year-end.

RATINGS RATIONALE

ba1 BASELINE CREDIT ASSESSMENT (BCA)

BAY's ba1 BCA remains unchanged, following today's rating action.

"At ba1, BAY's standalone intrinsic strength reflects its improved asset quality and stable capitalization. It also reflects its modest domestic franchise, a business model that is focused on consumer finance -- and which Moody's deems to be of higher risk relative to its peer banks, and its tight liquidity profile," says Simon Chen, a Moody's Assistant Vice-President and Analyst.

"We do not expect any significant changes to the management team or the strategy of BAY's existing businesses as a result of the proposed acquisition. We note that BTMU is considering to eventually merge its Thai branch with BAY. Moody's will assess the impact of such a transaction on BAY's financial profile and strategic direction once there are more details announced concerning this proposed integration," adds Chen.

Baa2 DEPOSIT RATING

BAY's Baa2 deposit rating is driven by its ba1 BCA, plus two notches of uplift to reflect our systemic support assumptions.

As the fifth largest bank in Thailand by system deposits with a 5% market share at end-2012, Moody's views BAY to be systemically important. Moody's assesses the probability that the Thai government will support BAY during financial distress to be very high. This probability of support will remain unaffected by any changes in the bank's shareholding structure.

POSITIVE OUTLOOK ON Baa2 DEPOSIT RATING

The positive outlook for BAY's Baa2 foreign currency deposit rating reflects Moody's expectation that BAY may benefit from support in times of stress from its new parent BTMU upon successful completion of the transaction. BTMU expects the planned acquisition to be completed by December 2013.

"In the scenario that BTMU succeeds in acquiring a majority stake in BAY, we expect BTMU to be a supportive shareholder, considering the complementary benefits that BAY's established Thai franchise would add to BTMU's existing Thai branch operations and overseas network, and BTMU's track record of demonstrating strong commitment to its overseas investments," says Chen.

As such, BAY's deposit rating may benefit from an additional notch of uplift to reflect our new parental support assumptions, upon the conclusion of the transaction.

In assessing parental support, Moody's will consider various factors in order to determine the predictability of parental support for BAY, including the availability of any explicit legal undertaking by BTMU to provide financial support to BAY, management control of BAY by BTMU, the strategic fit and importance of BAY to BTMU's regional expansion and business strategy, and BTMU's track record of providing support to its overseas subsidiaries and investments.

WHAT COULD DRIVE THE RATINGS DOWN/UP

BAY's ratings could be upgraded if Moody's concludes that BAY will benefit from specific and forthcoming parental support from its incoming parent BTMU, following the completion of the planned acquisition. Also, the bank's ratings could be upgraded if it continues to demonstrate improving credit metrics, such as with risk-adjusted profitability, measured by net income - as a percentage of risk-weighted assets -- exceeding 2.0%; non-performing loans (NPLs) as a proportion of gross loans falling below 2.0%; NPLs as a proportion of shareholder's equity and loan loss reserves falling below 12%; and credit risk concentration in single borrowers and industry sectors falling significantly.

Conversely, BAY's ratings could be downgraded or its positive rating outlook could be revised to stable if Moody's concludes that BAY will not benefit from parental support from BTMU upon the completion of the planned acquisition, and/or if the bank begins to show signs of deterioration in its credit profile as evidenced by an increase in its NPL ratio above 3.5% over several quarters; an increase in loan-to-deposit ratios to above 130%; and an increase in NPLs, as a proportion of shareholder's equity and loan loss reserves, above 20%.

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Bangkok, Bank of Ayudhya reported total assets of THB1,103 billion (USD35.6 billion) as of 31 March 2013.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jean-Francois Tremblay
Associate Managing Director
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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SUBSCRIBERS: (65) 6398-8308

Moody's affirms BAY's Baa2 rating; changes outlook to positive
No Related Data.
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