Rating Action Rationale
The three banks’ National ratings, as well as the IDRs and Support Ratings of UOBT and CIMBT are based on Fitch’s view that there is a high probability of support, if required, from their respective parents, United Overseas Bank Limited (UOB, 'AA-'/Stable), CIMB Bank Berhad (CIMB) and Industrial and Commercial Bank of China (ICBC; 'A'/Stable). This view is based on their parent banks’ near-full ownership, name sharing, and their strategic importance to their parents.
The Stable Outlooks for UOBT and ICBCT are consistent with that of their parents, while the Stable Outlook of CIMBT reflects Fitch’s expectation that the parent bank’s ability and propensity to provide extraordinary support to CIMBT is unlikely to change over the next one to two years.
UOBT’s Viability Rating (VR) of ‘bb+’ reflects its modest lending and deposits franchise, relatively weak funding profile, and persistently low profitability which is weaker than similarly rated peers, while the bank’s capital position remains one of the strongest among Thai peers. The VR also takes into consideration UOBT’s sound risk management culture and effective system, supported by UOB.
CIMBT’s VR of ‘bb-’ is based on its still modest franchise, low profitability and moderate liquidity. Despite improvements, CIMBT’s overall credit profile remains generally in line with similarly rated peers. The VR also reflects ordinary support from CIMB.
CIMBT’s short-term senior unsecured debentures program is consistent with the National rating of the bank’s Short-Term National Rating of ‘F1+(tha)’, as the debentures represent unsecured and unsubordinated obligations of the bank.
CIMBT's Thai baht-denominated subordinated Upper Tier 2 debts are currently rated two notches below CIMBT's National Long-term Rating, based on its subordination and coupon deferral feature. Its subordinated unsecured debts (Lower Tier 2) are rated one notch below. The notching for these debts instruments reflects their subordination in the capital structure and are in line with Fitch’s rating approach for such instruments.
Rating Drivers and Sensitivities — IDRs, Support Rating, and National Ratings
A material change in the parent banks’ ability and willingness to support its Thai subsidiaries would have an impact on the subsidiaries’ ratings. A reduction in the stake in the subsidiaries by the parent banks could result in a negative rating action.
Since UOB Thai’s LT FC IDR is constrained by Thailand’s country ceiling, an upgrade of country ceiling would be positive to UOB Thai’s LT FC IDR, while a downgrade of the country ceiling would be negative to UOBT’s LT FC IDR.
A material improvement in CIMB’s credit profile may result in an upgrade of CIMBT’s IDRs and National Ratings, conversely a significant deterioration may result in downgrades.
A downgrade of ICBC’s IDRs will negatively affect ICBCT’s National ratings. An upgrade of Thailand’s Long-Term Local Currency IDR, without any upgrade in the ratings of the parent ICBC, may result in a downgrade of ICBCT’s National ratings.
Rating Drivers and Sensitivities — Viability Rating and debts ratings
UOBT’s sustainable improvement in profitability without a material deterioration in asset quality or capital position would be positive to its VR, while deterioration in capital position may be negative to UOB Thai’s VR.
Significant and sustainable improvement in CIMBT’s overall financial strength compared with peers could positively affect the VR, while a significant deterioration in key financial measures particularly for asset quality, liquidity and capital could negatively impact the VR. CIMBT's senior unsecured and subordinated debt ratings will be affected by changes to the bank's National Ratings.
The performances of all three banks should continue to gradually improve over the medium-term due to the banks’ growth momentum and supportive economic outlook. However, CIMBT’s net profit in 2013 may be affected by reduced shared contributions from the management of legacy non-performing loans (NPLs). While, asset quality pressure could heighten in the medium-term for CIMBT and ICBCT due to their aggressive loan growth over the past two years, the risks could be mitigated by their strengthening loan loss coverage ratios of about 85%-90%. Moreover, expected capital support, if needed, from the parents should provide an additional buffer against the risks.
UOB has a 99.7% stake in UOBT. UOBT is the 9th-largest bank in Thailand with 2.1% market share in assets. CIMB has a 93.7% stake in CIMBT. CIMBT is the 11th-largest bank in Thailand with 1.7% market share in assets. ICBCT is 97.7%-owned by ICBC. It has a market share of assets at 0.9%.
The list of ratings actions is as follows:
UOBT:
- Long-Term Foreign Currency IDR affirmed at ‘A-’; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at ‘F2’
- Viability Rating affirmed at 'bb+'
- Support Rating affirmed at ‘1’
- National Long-Term Rating affirmed at ‘AAA(tha)’; Outlook Stable
- National Short-term Rating affirmed at ‘F1+(tha)’
CIMBT:
- Long-Term Foreign Currency IDR affirmed at 'BBB'; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at 'F3'
- Viability Rating affirmed at 'bb-'
- Support Rating affirmed at '2'
- National Long-term rating affirmed at 'AA-(tha)'; Outlook Stable
- National Short-term rating affirmed at 'F1+(tha)'
- National Short-term debts affirmed at ‘F1+(tha)’
- Upper tier 2 debt affirmed at 'A(tha)'
- Lower tier 2 debt affirmed at 'A+(tha)'
ICBCT:
- National Long-term rating affirmed at 'AAA(tha)'; Outlook Stable
- National Short-term rating affirmed at 'F1+(tha)'