TRIS Rating Affirms Company & Issue Ratings of "TCAP" at “A+/Stable”

TRIS Rating has affirmed the company rating of Thanachart Capital PLC (TCAP) and the ratings of TCAP’s senior debentures at “A+” with “stable” outlook. The ratings reflect TCAP’s position as an investment holding company of Thanachart Group, its management control of its core bank subsidiary, Thanachart Bank PLC (TBANK), through a 50.96% ownership stake, and a stable stream of dividends from TBANK. TCAP’s company rating is one notch lower than the company rating of TBANK. The one notch difference reflects TCAP’s dependence on dividends from TBANK and the regulatory barriers to payments of dividends. The “stable” outlook reflects the expectation that TBANK, as the major source of revenue for TCAP, will be able to leverage the synergies among TBANK and BNS to strengthen its market positions in its core lines of business. In addition, the strong financial support and business know-how from both strategic partners, BNS and TCAP, will sustainably enhance TBANK’s overall business and financial performance in the future. The ratings take into consideration the capable management team, the improvements in its standard risk management system, and the strong business support TCAP receives from its Canadian strategic partner – Bank of Nova Scotia (BNS). BNS holds a 49% stake in TBANK through Scotia Netherlands Holdings BV. The ratings also reflect TBANK’s enhanced franchise value and nationwide banking network after the acquisition of Siam City Bank PLC (SCIB) by TBANK in 2010. These strengths, however, are constrained by weakening asset quality, and intense competition in the banking, hire-purchase, and securities industries, as well as the uncertainty in the domestic political arena and the global financial arena. These factors might limit the Group’s profitability and expansion opportunities in the future. Based on consolidated asset size as of September 2012, TCAP was ranked 6th among all 15 Thai commercial banks, with 8.0% market share in loans and 7.2% market share in deposits. Its total consolidated assets were Bt957.2 billion, up by 7.8% year-on-year (y-o-y) from Bt888.1 billion as of September 2011. For the first nine months of 2012, TBANK and its subsidiaries contributed around 90% of the consolidated net operating income of TCAP. The remaining 10% was from the operations of TCAP and its two subsidiary companies which operate the distressed asset management business. TCAP’s financial profile deteriorated in 2011, which was in line with TRIS Rating’s projection for the post-acquisition business integration period. Consolidated net profit declined by 11.3% y-o-y, from Bt5.6 billion in 2010 to Bt5.0 billion in 2011. In 2011, return on average assets (ROAA) and return on average equity (ROAE) were 0.56% and 6.79%, respectively, down from 0.84% and 9.47% in 2010. However, net profit for the first nine months of 2012 was Bt4.1 billion, up slightly by 2.0% y-o-y. Non-annualized ROAA and ROAE were 0.45% and 5.29%, down slightly from 0.46% and 5.62% from the same period of the prior year. The slight drops were mainly caused by a declining interest spread as well as higher operating costs. The risk management framework of TCAP has been developed and improved, in an effort to comply with international standards. However, TCAP’s business profile is still pressured by a higher level of non-performing assets (NPAs; the sum of classified loans more than three months overdue, plus restructured loans and foreclosed property) which rose after the merger of TBANK and SCIB. TCAP has strived to resolve the legacy non-performing loans (NPLs), most of which were assumed when TBANK bought SCIB’s commercial loan portfolio. As a result, the amount of consolidated NPLs fell from Bt39.5 billion in 2010 to Bt35.7 billion at the end of September 2012. The ratio of NPLs to total loans reduced to 5.06% as of September 2012, from 6.46% in 2010. Nonetheless, TCAP’s NPLs ratio remained above the industry average of 3.27% for 11 Thai commercial banks (excluding four non-listed banks). As of September 2012, NPAs were 0.76 times capital funds plus the allowance for doubtful accounts, slightly down from 0.81 times in 2011. TCAP’s ratio, however, remains higher than the industry average of 0.44 times. In terms of its capital base, TCAP’s capital funds remained sufficient to support its growth in the medium term. As of June 2012, the company reported a Tier-1 capital ratio and a total capital ratio (on a fully consolidated basis) of 8.32% and 12.09%, respectively, down from 8.48% and 12.53% in 2011. These two ratios remain above the minimum requirements of 4.25% and 8.50% set by the Bank of Thailand (BOT). An improved risk management system, an experienced management team, and successful business diversification efforts are the crucial factors that will protect the company from downside risks in the medium term. Thanachart Capital PLC (TCAP) Company Rating: A+ Issue Ratings: TCAP131A: Bt3,000 million senior debentures due 2013 A+ TCAP14NA: Bt9,000 million senior debentures due 2014 A+ TCAP22NA: Bt3,000 million senior debentures due 2022 A+ Rating Outlook: Stable -กภ-

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