Fitch Rates Bank of Ayudhya's Basel III Tier 2 THB Notes at 'AA(tha)'

KEY RATING DRIVERS
The subordinated debentures are rated two notches below BAY's National Long-Term Rating to reflect higher loss-severity risk relative to senior unsecured notes. The notes do not incorporate going-concern loss absorption, and hence there is no additional notching for non-performance risk. The rating approach is in line with the baseline notching in Fitch's rating criteria.

The terms and conditions of the notes include a non-viability trigger, which is defined in line with local standards as emergency capital assistance from the central bank or any other empowered government agency.

BAY's ratings are driven by Fitch's expectations that the bank's Japan-based parent, MUFG Bank, Ltd. (A-/Stable), would provide extraordinary support to the bank if needed. BAY is 76.9% owned by MUFG, and there are significant levels of management and operational integration. BAY is one of the group's largest overseas subsidiaries, and provides banking services to MUFG's clients in Thailand, which is a key investment destination for Japanese corporates.

For further details on BAY's key rating drivers and sensitivities, please refer to Fitch Affirms Bank of Ayudhya at 'BBB+' and 'AAA(tha)'; Outlook Stable, published 27 July 2022.

RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of BAY's National Long-Term Rating would lead to a downgrade of the subordinated notes.

A reduced ability or propensity of MUFG to support the Thai subsidiary could lead to negative rating action on BAY's National Long-Term Rating, although any assessment would also take into account BAY's credit profile relative to other entities on the Thai national rating scale.

For example, a downgrade of MUFG's Long-Term IDR would likely lead to similar action on BAY's ratings. A reduction in MUFG's shareholding to below 50%, combined with reduced funding support and management linkages, could also lead to negative action on BAY's ratings.

Factors that could, individually or collectively, lead to positive rating action/upgrade:
The anchor rating for the subordinated notes, the National Long-Term Rating, is at the top end of the scale. There could be potential upside to the subordinated notes if Fitch re-assesses that loss severity upon non-performance would not be poor, and would hence warrant a gap of one notch with the anchor rating, rather than two notches. However, Fitch does not expect any changes in the near term.

DATE OF RELEVANT COMMITTEE
26 July 2022

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BAY's National Ratings are linked to the Long-Term IDR of MUFG.

Additional information is available on www.fitchratings.com

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