Published on 21 Aug 2020.
RAM Ratings has reaffirmed the AA2/Stable rating of Krung Thai Bank Public Company Limited’s (KTB or the Group) RM5.0 bil Tier-2 Subordinated Notes Programme (2015/2045). The rating continues to reflect our expectation of ready support from the government of Thailand (rated AA1(pi)/Stable/P1(pi) by RAM) if needed, given KTB’s systemic importance and the former’s majority ownership of the Group. KTB remains one of the largest banks in the country, with a 16% share of the Thai banking system’s gross loans and deposits as at end-March 2020.
A central theme in the outlook on the asset quality performance of banks this year is the greater downside risks posed by the Covid-19 crisis, which has triggered economic turmoil across the globe. Although headwinds abound with the lingering possibility of widespread delinquencies, we expect KTB’s sturdy loss absorption buffer in the form of pre-provision profit and capital to sufficiently cushion potentially outsized provisioning costs in the 2020-2021 period.
The Bank of Thailand (BoT) has outlined minimum relief measures that banks are required to offer borrowers, urging banks to pre-emptively restructure loans to manage borrowers’ debt burdens before they become impaired. Save for SMEs with credit lines of below THB100 mil where loan payments are automatically deferred for six months, other borrowers have to request for a moratorium. The Group has estimated the quantum of loans that could come under moratorium to be in the range of 20%-30% of its portfolio, based on loan limits.
The Group’s headline gross impaired loan ratio was higher q-o-q at 5.3% as at end-March 2020 (industry: 3.6%; end-December 2019: 4.9%), as operating conditions were already softer in 1Q 2020. We expect KTB’s asset quality to stay weak in the next 12-18 months, with the quantum of provisioning needs dependent on the speed of economic recovery as well as the Group’s ability to pre-emptively restructure loans ahead of credit deterioration.
KTB’s robust capitalisation and strong funding and liquidity continue to be key rating strengths, moderating risks from its historically weaker-than-peer asset quality and consequently softer profitability. As at end-March 2020, the Group’s common equity tier-1 and total capital ratios were a respective 15.0% and 18.7%, while both its Basel III liquidity coverage ratio (LCR) and net stable funding ratio were comfortably above 100%. In light of the current situation, BoT has allowed banks to operate below a LCR of 100% until end-December 2021 – although KTB does not foresee breaching the threshold.
The central bank has also asked banks to suspend interim dividend payments and share buy-back exercises in 2020 as the latter draw up their capital management plans for the next one to three years – a positive move, in our view, as it preserves capital. We believe KTB’s robust capital position stands it in good stead to absorb potentially greater credit losses in the next two years.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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Ratings on Krung Thai Bank Public Company Limited