Published on 16 Aug 2019.
RAM Ratings has reaffirmed the AA2/Stable rating of Krung Thai Bank Public Company Limited’s (KTB or the Group) RM5.0 billion Tier-2 Subordinated Notes Programme (2015/2045) while concurrently withdrawing the AA1/Stable rating of the Group’s proposed Senior MTN Programme following its expiry. The reaffirmation reflects our view that the government of Thailand (rated AA1(pi)/Stable/P1(pi) by RAM) is highly likely to extend support in times of need, given KTB’s systemic importance as well as the government’s majority ownership of the Group. With a 15% share of the Thai banking system’s gross loans and deposits as at end-March 2019, the Group stands among the largest banks in the country – ranking second and third by the said measures.
KTB’s extensive network and close ties with the government and state-owned enterprises are a core funding advantage. As at end-December 2018, deposits from individuals and government-related entities comprised a substantial 51% and 34% of total deposits while current and savings account (CASA) deposits accounted for over 70%, bearing testament to the Group’s strong funding capabilities. CASA deposits will continue to be a cornerstone in KTB’s funding strategy going forward, in view of the Group’s focus on funding cost management to moderate net interest margin (NIM) compression amid an increasingly competitive operating environment. Its NIM stayed largely unchanged at an annualised 3.2% in 1Q fiscal 2019 after a 14-bp compression in fiscal 2018.
KTB’s asset quality indicators have been broadly stable since 3Q fiscal 2018, although still weaker than peers’. Its gross impaired loan ratio settled at 5.4% as at end-March 2019 after reaching a peak of 5.6% in June last year, while the Group’s credit cost ratio receded to an annualised 1.4% in fiscal 2018 and 1Q fiscal 2019 (fiscal 2017: 2.2%). We expect loan impairment charges to remain elevated in fiscal 2019 owing to pockets of weakness in KTB’s SME and retail portfolios, a high proportion of special-mention loans (3.5% of gross loans) and the Group’s susceptibility to lumpy defaults. We derive comfort in the Group’s readiness to adopt International Financial Reporting Standard 9 in January 2020 – it is not expected to experience any shortfall in provisions on the first day of implementation. As at end-March 2019, KTB’s loan loss reserve coverage stood at a sound 127%.
The Group’s robust capitalisation is still a key rating strength, evinced by common equity tier-1 and total capital ratios of 14.6% and 18.4%, respectively, as at end-March 2019. Earnings accretion supported the continued uptrend in KTB’s capital indicators, which are anticipated to stay well above the regulatory minimum even with the fully phased-in capital surcharge for domestic systemically important banks next year.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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Ratings on Krung Thai Bank Public Company Limited