Fitch Affirms TMB Bank at 'BB+'; Outlook Positive
Fitch Ratings has today affirmed TMB Bank Public Company Limited’s (“TMB”) ratings following the bank’s announcement that its rights issue has been fully subscribed. The ratings are affirmed at foreign currency Issuer Default ‘BB+’ with a Positive Outlook, Short-term foreign currency ‘B’, Individual ‘D’ and Support ‘3’. Its foreign currency subordinated debt is affirmed at ‘BB’ and foreign currency hybrid Tier 1 securities at ‘B+’. At the same time, Fitch Ratings (Thailand) has affirmed TMB’s National ratings at Long-term ‘A(tha)’ with a Positive Outlook, Short-term ‘F1(tha)’ and its subordinated debt at ‘A-(tha)’ (A minus(tha)).
The bank raised THB9.7 billion of new capital via the sale of 3.22 billion new shares at THB3 apiece through the rights issue. The new capital is likely to see TMB’s Tier 1 capital ratio increase to about 9.7% (including H106 profit) of risk-weighted assets from 7.4% at end-June 2006.
While the capital raising addresses some of Fitch’s concerns on TMB’s financial strength, the bank still has low reserves, as well as weak profitability and franchise relative to its peers. In H106, TMB reported a net profit of THB3.1bn, down from THB4.1bn in H105, as a result of higher provisions and operating expenses. Net interest margin fell slightly to 2.1% on an annualised basis in H106 from 2.12% the prior year, which is significantly lower than its peers, reflecting bad debt overhang and higher funding costs.
At end-June 2006, TMB reported impaired loans of THB75.5bn, or about 13.6% of total loans, down slightly from THB77.4bn (14%) at end-2005, due to bad loan write-offs of THB2.1bn. Loan loss reserves stood at THB33bn, which equated to 43.8 % of impaired loans. Relatively weak reserve coverage and high restructured loans could spur further provisioning. TMB’s net impaired loans/equity stood at 79.7% at end-June 2006, although the new capital would likely reduce the ratio to about 67.5%, which still appears high when compared with most other peers.
Fitch maintains a Positive Outlook on TMB’s ratings as the agency views the capital raising, together with the strengthening of the bank’s franchise, should result in higher revenues and improved profitability in the medium term. However, at this stage, the franchise impact of its 16.1% strategic shareholder, Development Bank of Singapore (“DBS”, rated ‘AA-’ (AA minus)/Stable/‘F1+’), has been limited.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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