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Rating Action:

Moody's affirms TMB Bank's ratings with a positive outlook

05 Mar 2019

Singapore, March 05, 2019 -- Moody's Investors Service has affirmed the foreign currency deposit rating of TMB Bank Public Company Limited (TMB) at Baa2.

Moody's has also affirmed the Baseline Credit Assessment (BCA) and adjusted BCA of TMB at ba1.

The outlook on all of TMB's ratings — where applicable — is maintained at positive.

The list of affected ratings is provided at the end this press release.

RATINGS RATIONALE

EXPECTED IMPROVEMENTS TO TMB'S STANDALONE CREDIT PROFILE DRIVE THIS RATING ACTION

On 26 February 2019, TMB, ING Groep N.V. (ING), Thanachart Capital Public Company Limited (TCAP), Thanachart Bank Public Company Limited (TBANK) and The Bank of Nova Scotia (BNS) entered into a non-binding memorandum of understanding for a merger between TMB and TBANK.

TMB's ratings outlook is maintained at positive, following the announcement of the transaction, because Moody's continue to expect the bank's asset quality and profitability to improve, at the same time as maintaining sufficient loss absorbing buffers resulting in upward pressure on the bank's standalone credit profile or BCA.

Furthermore, Moody's expects the proposed merger will be transformational for the two banks, creating the sixth largest bank in Thailand, with a deposit market share of 7% as of 31 December 2018. The merged entity will be able to bolster its market position by capitalizing on TMB and TBANK's individual strengths; TMB's strong retail deposit base, and TBANK's leading position in auto lending in Thailand.

As a result, Moody's expects that the standalone financial strength of the combined banks will improve, placing upward pressure on the BCA and ratings.

Nevertheless, the proposed transaction structure is complex and a key area to monitor will be the impact on the combined capital position and TMB's ability to raise the planned equity to fund the transaction. Based on the announced plans, TMB plans to raise about THB40-THB45 billion in new equity from its existing shareholders.

In addition, despite the potential to generate cost synergies from the integration of the key support functions of the two banks, integration costs in the first few years of the merger will have a negative impact on the combined profitability.

TMB will be the surviving entity and remain listed on the Thai stock exchange.

TBANK is privately owned by TCAP and BNS. According to the preliminary transaction structure, ING and TCAP will own a more than 20% stake in the combined bank, while the shareholding of BNS will significantly decline.

In addition, Thailand's Ministry of Finance (MOF), which owns a 26% stake in TMB, will continue to remain a shareholder in the combined bank. The transaction is likely to complete by the end of 2019, and will be subject to final due diligence between the involved parties, as well as the receipt of the regulatory approvals.

AFFILIATE SUPPORT ASSUMPTION REMAINS UNCHANGED FOR TMB

Moody's does not explicitly incorporate any support from ING into the ratings of TMB. Nevertheless, once the transaction is complete, Moody's may revisit the support assumptions, taking to account the shareholding of ING in the combined bank, as well as ING's involvement in the strategic direction of the merged bank.

GOVERNMENT SUPPORT ASSUMPTION REMAINS UNCHANGED FOR TMB

In Moody's view, the Thai government is willing and able to support the banking sector. The government has provided support for the country's banks in times of need, notably through the Financial Institutions Development Fund during the Asian financial crisis in 1997-98. It has not let any bank fail over the past three decades. This stance is unlikely to change over the next 12-18 months.

Moody's view on support for TMB is further enhanced by the fact that the MOF will continue to remain a key shareholder in the combined bank. Furthermore, with this transaction, the systemic importance of TMB will increase.

Based on these expectations, Moody's incorporates a very high level of government support in the deposit rating of TMB. The foreign currency deposit rating for TMB of Baa2 is therefore two notches above its adjusted BCA of ba1.

WHAT COULD CHANGE THE RATING UP

Given the positive ratings outlook, Moody's could upgrade TMB's ratings if: (1) the standalone financial performance of TMB remains stable, including its asset quality, profitability and loss absorbing buffers, (2) the transaction does not result in a material negative impact to its financial performance, particularly the capital position, and (3) the funding and liquidity profiles of the two banks remain stable.

WHAT COULD CHANGE THE RATING DOWN

Moody's could change TMB's ratings outlook to negative or downgrade the bank's ratings if: (1) the standalone credit profile of TMB deteriorates, such that there is a material deterioration in the bank's asset quality, profitability and loss absorbing buffers, (2) the transaction will result in a material negative impact to TMB's capital position and or other financial fundamentals, or (3) if the operating environment in Thailand deteriorates materially, resulting in a lowering of the bank's BCA.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

TMB Bank Public Company Limited, headquartered in Bangkok, reported total assets of THB892 billion ($28 billion) as of 31 December 2018.

LIST OF AFFECTED RATINGS

TMB Bank Public Company Limited

- Long-term foreign currency bank deposit rating affirmed at Baa2, positive outlook

- Short-term foreign currency bank deposit rating affirmed at P-2

- Foreign currency senior unsecured MTN program affirmed at (P)Baa2

- BCA and Adjusted BCA affirmed at ba1

- CR Assessment affirmed at Baa1(cr)/P-2(cr)

- Local and foreign currency Counterparty Risk Rating affirmed at Baa1/P-2

- Outlook, where applicable, is maintained at positive

TMB Bank Public Co. Ltd (Cayman Islands)

- Foreign currency senior unsecured MTN program affirmed at (P)Baa2

- Long-term foreign currency senior unsecured debt affirmed at Baa2, positive outlook

- CR Assessment affirmed at Baa1(cr)/P-2(cr)

- Local and foreign currency Counterparty Risk Rating affirmed at Baa1/P-2

- Outlook, where applicable, is maintained at positive

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Alka Anbarasu
VP - Senior Credit Officer
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
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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