Published on 31 May 2021.
RAM Ratings has reaffirmed CIMB Thai Bank Public Company Limited’s (the Bank) AA2/Stable/P1 financial institution ratings as well as the AA3/Stable rating of its RM2 bil Tier-2 Subordinated Debt Programme (2014/2044). The ratings reflect our expectation of continued support from CIMB Thai’s immediate parent, CIMB Bank Berhad (rated AAA/Stable/P1), owing to its strategic importance to the ASEAN-focused strategy of the Bank’s ultimate parent, CIMB Group Holdings Berhad (the Group, rated AA1/Stable/P1).
Due to local regulations prohibiting further equity injections into CIMB Thai, parental backing to strengthen the Bank’s capital buffers will be extended through other channels if required. These include the subscription of additional tier-1 or tier-2 capital, purchase of CIMB Thai’s impaired loans via Sathorn Asset Management Company Limited and the diversion of large credits to other banking subsidiaries within the Group.
As with most regional peers, the asset quality of Thai banks is upheld by a slew of relief measures made available to borrowers affected by the Covid-19 crisis. As a result of a larger bad-debt disposal, CIMB Thai’s gross impaired loan (GIL) ratio eased to 4.6% as at end-December 2020 (end-December 2019: 4.7%) before inching up to 4.8% as at end-March 2021. The q-o-q uptick was mainly attributable to a shrinking loan base as GILs stayed relatively unchanged. The Bank’s credit cost ratio rose to 1.4% in 2020 from 1.2% in 2019 due to pre-emptive provisioning and the refinement of its provisioning model.
The economic outlook for Thailand remains cloudy in view of its heavy reliance on exports and tourism, which have been severely impacted by the pandemic. Economic recovery has been derailed by the recent resurgence of infections, necessitating stricter lockdown measures in certain provinces. We expect delinquencies to emerge after the expiration of all relief measures. Some comfort can be derived from ongoing efforts to pare down the Bank’s problematic portfolios, particularly its commercial exposure.
Historically, CIMB Thai’s profitability has been weak, its five-year (2016-2020) average return on risk weighted assets standing at 0.3%. This is reflective of the Bank’s subscale operations in the Thai banking sector, as evinced by a high cost-to-income ratio of 60% in FY Dec 2020. CIMB Thai posted a stronger top line last year but its bottom line was dragged down by a sizeable modification loss and heftier impairment charges. Net interest margin (NIM) was crimped by successive rate cuts during the year. We foresee upside in the Bank’s earnings this year with the normalisation of NIM in the absence of aggressive rate cuts and the unwinding of the modification loss. Still-elevated provisioning expenses will however limit any increase.
CIMB Thai’s common equity tier-1 capital ratio was a better 14.7% as at end-March 2021 (end-December 2019: 13.1%), primarily on account of stronger profit accretion and the restatement of FY Dec 2019 profit. The improvement was also aided by a reduction in risk-weighted assets, to a lesser extent. The fortified capitalisation will afford a larger loss absorption buffer to withstand heightened credit risk.
Tan Shu Xuan
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Ratings on CIMB Thai Bank Public Company Limited