KEY RATING DRIVERS
The Basel III Tier 2 notes are rated one notch below the anchor rating to reflect their higher loss-severity risk relative to senior unsecured instruments arising from their subordinated status. Key terms of the notes include a non-viability trigger (defined as emergency capital assistance from the central bank or any other empowered government agency), with a partial rather than mandatory full write-down feature.
The Tier 2 notes are senior to any Additional Tier 1 securities with loss-absorption features. In the event of a write-down, the Tier 2 notes would be written down on a pari passu basis with all other Tier 2 loss-absorbing instruments with write-down features of the issuer.
KBank's National Long-Term Rating of 'AA(tha)' is used as the anchor rating because the rating is based on the bank's standalone financial strength. Fitch believes that the bank's standalone credit profile is the best indicator for non-performance risk (that is, becoming non-viable). No additional notching has been applied as the notes do not have any going-concern loss-absorption features.
KBank's standalone financial strength, as reflected in the Viability Rating (VR), takes into account KBank's strong domestic franchise in Thailand and its large client base. The bank's standalone financial profile has been sound, but is under increasing pressure due to a persistently weak economic outlook. Fitch believes KBank's overall financial strength compares favourably with that of similarly rated or higher-rated peers, particularly in profitability, asset-quality measures and capital. KBank should be able to weather an increasingly challenging environment over the next year or two, in light of its reasonable buffers in terms of capital, reserve coverage and earnings.
RATING SENSITIVITIES
Any change in KBank's National Long-Term Rating would similarly affect the rating of the notes.
KBank's Long-Term National Rating would be affected by any change in the bank's standalone profile, as indicated by the VR. The Long-Term National Rating could be upgraded if the bank shows it can withstand the current weak operating environment while continuing to strengthen its key capital and asset-quality buffers.
A sharp slippage in risk appetite and sustained weakness in asset quality, which leads to – or increases the risk of – significantly lower capitalisation buffers could have a negative impact on the bank's VR, which would also impact its National Long-Term Rating.
The other ratings of KBank are unaffected and are as follows:
Long-Term Foreign Currency IDR: 'BBB+'; Outlook Stable
Short-Term Foreign Currency IDR: 'F2'
Viability Rating: 'bbb+'
Support Rating: '2'
Support Rating Floor: 'BBB-'
National Long-Term Rating: 'AA(tha)'; Outlook Stable
National Short-Term Rating: 'F1+(tha)'
Senior unsecured USD2.5bn euro medium-term note programme: 'BBB+'
Long-term foreign currency senior unsecured debt: 'BBB+'
National long-term subordinated debt rating: 'AA-(tha)'