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Rating Action:

Moody's affirms the ratings of nine Thai Banks and upgrades standalone BCA of two banks

21 Jun 2018

Singapore, June 21, 2018 -- Moody's Investors Service has affirmed the foreign currency deposit ratings of nine Thai banks.

The affected banks are: (1) Bangkok Bank Public Company Limited (BBL), (2) Bank of Ayudhya (BAY), (3) CIMB Thai Bank Public Company Limited (CIMBT), (4) KASIKORNBANK Public Company Limited (KBank), (5), Krung Thai Bank Public Company Limited (KTB), (6) Siam Commercial Bank Public Company Limited (SCB), (7) Standard Chartered Bank (Thai) Public Co Ltd (SCBT), (8) TMB Bank Public Company Limited (TMB), and (9) United Overseas Bank (Thai) Public Co Ltd (UOBT).

Moody's has also upgraded the baseline credit assessment (BCA) of BAY to baa3 from ba1, and of TMB to ba1 from ba2. The BCAs of the other seven affected banks were affirmed: BBL, KBank, and SCB at baa2; KTB, UOBT and SCBT at ba1; and CIMBT at ba2.

In the case of TMB and its Cayman Island branch, the outlook on all their ratings — where applicable — is changed to positive from stable. The outlook on the bank's senior unsecured debt, issued out of the Cayman Island branch, is also changed to positive from stable.

The ratings outlooks on the ratings and branches of the other eight affected Thai banks remain stable. A stable outlook was assigned to KTB Singapore branch.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_199757 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

AFFIRMATION OF BANK RATINGS IN RESPONSE TO STABILIZING OPERATING ENVIRONMENT

Moody's has raised its full-year 2018 real GDP forecast for Thailand to 4%, from its previous estimate of 3.6%, to reflect the current cyclical recovery, driven by increasing exports, tourism and consumer demand.

Although Thailand's economic growth will remain low, compared to the robust growth rates registered in the mid-2000s and earlier this decade, Moody's expects the positive momentum will translate into improved growth prospects for the banking system.

As a result, Moody's has changed the Macro Profile for Thailand to "Moderate +" from "Moderate", with an improvement to "Strong-" from "Moderate+" in the country's banking country risk score. Another driver for the improvement in the banking country risk score is the easing of political risks in the country. While Thailand still faces elevated domestic political risks relative to peers, such risks have eased more recently given the orderly monarchial succession. The promulgation of a constitution also paves the way for elections, likely to be held in early 2019.

Nevertheless, the high leverage levels present in the corporate and household sectors will continue to pose risks to the banking sector's asset quality. The banks have experienced increased stress in their small and medium enterprise (SME) and retail loans due to the inability of SME operators to respond quickly to fluctuations in the operating environment.

Furthermore, political risk and an aging population, in addition to challenges related to a mismatch between the availability of and the demand for skills in the labor force, pose downside risks to the cyclical recovery.

The affirmation of the banks' ratings reflect Moody's view that the upside and downside risks to the banking sector are equally balanced. In addition, the standalone credit profiles or BCAs of a number banks could experience upward pressure, if the cyclical economic recovery becomes more broad based, which will positively impact the credit quality of the banking sector's loans.

UPGRADE OF BAY AND TMB'S BCA

The upgrade of BAY's BCA to baa3 from ba1 reflects the improvement to the bank's standalone credit strength over the last three years, particularly its stable asset quality, supported by strong loan-loss reserves and capital.

The improvement follows BAY's integration with MUFG Bank, Ltd.'s (A1/A1 stable, a3) operations in Thailand in 2015 which created an entity with a more balanced loan and deposit mix, together with the bank's active problem loan management. On balance, the BCA also considers BAY's modest funding and liquidity compared to other domestic peers.

The upgrade of TMB's BCA to ba1 from ba2 also reflects the improvement to the bank's standalone credit strength over the last three years, particularly its capital which is now broadly in line with the other larger banks in Thailand like BBL, SCB and KTB.

Furthermore, despite an increase in non-performing loans (NPLs), the bank has maintained its loan-loss coverage at a level of about 140%, which is broadly in line with the larger peers in the system. The bank's core profitability has also improved as it has focused on building its liability franchise (low cost deposits), controlling its cost base and boosting its non-interest income.

On balance, the BCA also considers TMB's large stock of restructured loans which could pose risks to its asset quality and profitability.

AFFIRMATIONs OF BBL, CIMBT, KBank, KTB, SCB, SCBT and UOBT BCAs

The affirmations of BBL, CIMBT, KBank, KTB, SCB, SCBT and UOBT's BCAs reflect Moody's expectation that the banks' credit profiles will broadly remain stable over the next 12 -- 18 months. While reported asset quality metrics may further deteriorate, Moody's expects the new problem loan formation rate to gradually slow down as the country's economic recovery becomes more broad based.

In addition, their strong loss-absorbing buffers, as reflected by their capital and loan-loss provisioning levels, will provide support against risks. Funding and liquidity for these banks remain stable in light of their low reliance on market funds and relatively stable liquidity profiles.

AFFILIATE SUPPORT REMAINS AN IMPORTANT RATING CONSIDERATION FOR BAY, CIMBT, SCBT AND UOBT

The adjusted BCAs of the rated foreign-owned subsidiaries in Thailand -- BAY, CIMBT, SCBT and UOBT -- take into account their standalone credit strength and our assumption of support from their respective parents.

After taking into account the rating actions on its BCA, the adjusted BCA of BAY bank is upgraded to baa1 from baa2.

The adjusted BCAs of other banks are affirmed as following: UOBT at baa1, and CIMBT and SCBT are affirmed at baa2.

GOVERNMENT SUPPORT ASSUMPTIONS REMAIN UNCHANGED FOR ALL THE AFFECTED THAI BANKS

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.

Based on this expectation, Moody's incorporates a very high level of government support into the deposit ratings of BBL, KBank, KTB, SCB and TMB. BBL, KBank and SCB's FC deposit ratings of Baa1 are one notch above their adjusted BCAS of baa2 and KTB's FC deposit rating is three notches above its adjusted BCA of ba1.

The FC deposits ratings of all these banks are at the same level as the government of Thailand's Baa1 rating. And in the case of TMB, its FC deposit rating of Baa2 is two notches above its adjusted BCA of ba1.

Moody's factors in a high level of government support for BAY. However, that does not result in any ratings uplift and BAY's FC deposit rating of Baa1 is at the same level as its adjusted BCA of baa1.

For the smaller foreign-owned banks, SCBT, UOBT and CIMBT, our FC deposit ratings incorporate a moderate level of government support. The FC deposit ratings of these banks are at the same levels as their adjusted BCAs.

RATINGS OUTLOOKS

The outlooks on ratings of the following banks and their branches, as applicable, are maintained as stable: BBL, BAY, CIMBT, KBank, KTB, SCB, SCBT and UOBT.

The ratings outlooks on TMB and its Cayman Island Branch are changed to positive from stable.

WHAT COULD CHANGE THE RATING UP

BBL, KBank, KTB and SCB

The FC deposit ratings of BBL, KBank, KTB and SCB are already at the level of Thailand's sovereign rating of Baa1 stable. As such, the banks' ratings could be upgraded if the sovereign rating is upgraded.

The BCAs of BBL, KBank, KTB and SCB could be upgraded if the banks demonstrate an improvement in their asset quality performance, supported by continued strength in their loss-absorbing buffers (including both loan-loss reserves and capital), as well as funding and liquidity.

BAY and UOBT

The FC deposit ratings of BAY and UOBT are already at the level of Thailand's sovereign rating of Baa1 stable. As such, the banks' ratings could be upgraded if the sovereign rating is upgraded.

For BAY, the BCA could be upgraded if the bank maintains its stable asset quality performance and further improves its capitalization and funding and liquidity. An upgrade of the standalone credit profile of its majority shareholder, MUFG Bank, Ltd., could also lead to an upgrade of its FC deposit rating.

For UOBT, the BCA and adjusted BCA could be upgraded if its credit profile improves, with a stabilization in asset quality performance and the bank further improves its capitalization and loan-loss reserves, supported by its stable funding and liquidity position.

CIMBT and SCBT

The FC deposit ratings of CIMBT and SCBT could be upgraded if their BCAs are upgraded, as reflected by a stabilization in their asset quality performance, supported by maintenance of sufficient loss-absorbing buffers, and an improvement in their profitability profiles.

For SCBT, an upgrade of the standalone credit profile of its parent, Standard Chartered Bank (A1 stable, baa1), could also lead to an upgrade of its FC deposit rating.

TMB

Given the positive outlook, TMB's ratings could be upgraded if its BCA is upgraded, as reflected by an improvement in its asset quality performance, supported by maintenance of sufficient loss-absorbing buffers, and an improvement in its profitability profile.

WHAT COULD CHANGE THE RATING DOWN

BBL, KBank, KTB and SCB

The FC deposit ratings of BBL, KBank, KTB and SCB could be downgraded if the sovereign rating is downgraded.

The BCAs of these banks could be downgraded if their financial fundamentals deteriorate significantly. If all other rating factors are constant, the BCAs would come under adverse pressure if the banks report significantly increased problem loan ratios or significantly reduced profitability.

BAY and UOBT

The FC deposit ratings of BAY and UOBT could be downgraded if the sovereign rating is downgraded. In addition, a downgrade of their parents' BCAs could also lead to a downgrade of their adjusted BCAs and ratings.

The BCAs of these banks could be downgraded if their financial fundamentals deteriorate significantly. If all other rating factors are constant, the BCAs would come under adverse pressure if they report significantly increased problem loan ratios or significantly reduced profitability.

CIMBT and SCBT

The FC deposit ratings of CIMBT and SCBT could be downgraded if their BCAs are downgraded due to a deterioration in their financial fundamentals. If all other rating factors are constant, the BCAs would come under adverse pressure if they report significantly increased problem loan ratios or significantly reduced profitability.

In addition, a downgrade of their parents' BCAs could also lead to a downgrade of their adjusted BCAs and ratings.

TMB

TMB's ratings could be downgraded if its BCA is downgraded due to a significant deterioration in its financial fundamentals. If all other rating factors are constant, the BCA will come under adverse pressure if it reports significantly increased problem loan ratios or significantly reduced profitability.

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

Bangkok Bank Public Company Limited (BBL), headquartered in Bangkok, reported total assets of THB3,174 billion ($102 billion) as of 31 March 2018.

Bank of Ayudhya (BAY), headquartered in Bangkok, reported total assets of THB2,160 billion ($69 billion) as of 31 March 2018.

CIMB Thai Bank Public Company Limited (CIMBT), headquartered in Bangkok, reported total assets of THB313 billion ($10 billion) as of 31 March 2018.

KASIKORNBANK Public Company Limited (KBank), headquartered in Bangkok, reported total assets of THB2,994 billion ($96 billion) as of 31 March 2018.

Krung Thai Bank Public Company Limited (KTB), headquartered in Bangkok, reported total assets of THB2,888 billion ($93 billion) as of 31 March 2018.

Siam Commercial Bank Public Company Limited (SCB), headquartered in Bangkok, reported total assets of THB3,055 billion ($98 billion) as of 31 March 2018.

Standard Chartered Bank (Thai) Public Co Ltd (SCBT), headquartered in Bangkok, reported total assets of THB178 billion ($6 billion) as of 31 March 2018.

TMB Bank Public Company Limited (TMB), headquartered in Bangkok, reported total assets of THB829 billion ($27 billion) as of 31 March 2018.

United Overseas Bank (Thai) Public Co Ltd (UOBT), headquartered in Bangkok, reported total assets of THB527 billion ($17 billion) as of 31 March 2018.

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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: 81 3 5408 4110
Client Service: 81 3 5408 4100

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.
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