TRIS Rating Assigns A-/Stable Ratings to Senior Unsecured Debt Worth Up to Bt4,500 Million of KK

Stocks and Financial Services Press Releases Monday February 12, 2018 15:09
Bangkok--12 Feb--TRIS Rating

TRIS Rating affirms the company rating of Kiatnakin Bank PLC ("KK") at "A-" and affirms the ratings of KK's senior unsecured debentures and hybrid Tier 2 capital securities at "A-" and "BBB", respectively. At the same time, TRIS Rating assigns the rating of "A-" to KK's proposed issue of up to Bt4,500 million in senior unsecured debentures.

The ratings reflect KK's strengthened business position following its successful integration of capital market and commercial banking operations. This integrated operating platform will significantly enhance its niche position in the Thai banking industry with unique strengths in fee-based business. The ratings take into account KK's diverse sources of revenue, particularly those from non-credit businesses, and its strong capital position. The ratings are, however, constrained by KK's small market share in loans and deposits and relatively weak funding capability.

KK is a small size commercial bank in the Thai banking industry. It was ranked 10th among 11 Thai commercial banks listed on the Stock Exchange of Thailand (SET) in terms of consolidated asset size, with 1.7% market share in loans and 1.2% share in deposits as of September 2017. KK has diverse sources of revenue, with net interest income and net fees and service income contributing 62.6% and 22.7%, respectively, during the first nine months of 2017 (9M-2017). The bank's strategic focus for revenue growth is on fee-based business, particularly private banking. It also has a strong market position in investment banking and securities brokerage.

KK has a relatively strong capital position, with a Basel-III compliant total capital ratio of 17.7% as of September 2017, around 82% of which was core equity Tier-1. Profitability of the bank is high by industry standards, with a return-on-average-asset ratio of 1.86% during 9M-2017.

KK's asset quality is on an improving trend indicated by low credit costs of 0.6% in 9M-2017, down from a peak of 2.8% in 2014. Non-performing loan (NPL) coverage ratio improved from 80.3% in 2014 to 105.5% as of September 2017. NPL as a percentage of total loans lowered slightly to 5.6% as of September 2017 from 5.8% in 2015. Real estate and construction sectors continue to represent a significant portion of the total NPLs.

KK has a relatively high reliance on borrowing, which is viewed as a less stable and relatively expensive funding source. Loan-to-deposit ratio including bills of exchange (B/Es) was 141.4% as of September 2017, on the high side relative to the industry. Current account and savings account (CASA) made up 48.4% of total deposits including B/Es, also below the industry average.

The "stable" outlook reflects the expectation that KK will maintain its business position with its strengths in non-credit fee based businesses and its strong capital and earnings position.

The ratings could be revised downward in case of a sustained period of substantially weakened profitability or a severe deterioration of asset quality. A rating upgrade will depend on KK's ability to significantly increase its shares of earnings from fee-based businesses or materially improve its funding capability.

Kiatnakin Bank PLC (KK)
Company Rating:                                                       A-
Issue Ratings:
KK187A: Bt240 million senior unsecured debentures due 2018             A-
KK18DA: Bt625 million senior unsecured debentures due 2018             A-
KK18DB: Bt10 million senior unsecured debentures due 2018             A-
KK25DA: Bt3,000 million hybrid Tier 2 capital securities due 2025     BBB
Up to Bt4,500 million senior unsecured debentures due within 2 years   A-
Rating Outlook:                                                       Stable

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