The Short-Term IDR has been upgraded because Fitch has assessed that prospects of extraordinary support from BAY's parent, MUFG Bank, Ltd. (A/Stable/F1), have become more certain in the near term. BAY's level of integration with the group continues to increase since its merger with MUFG's Bangkok branch in 2015, which reflects positively in terms of improved funding and liquidity prospects for BAY. Moreover, the bank has shown that it is a key component of MUFG's regional strategy.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, NATIONAL RATINGS AND SENIOR DEBT
The bank's IDRs, Support Rating, National and senior debt ratings reflect Fitch's view that BAY is a strategically important subsidiary of MUFG. The Japanese parent owns 76.9% of BAY, and has management control. There are important marketing linkages, particularly in terms of MUFG's Japanese corporate-client base and the group's expertise in cross-border banking products. BAY represents one of MUFG's largest overseas investments, and is a key contributor to the group's operations in south-east Asia. MUFG also provides important operational support to its Thai subsidiary, including funding.
BAY's National Rating of 'AAA(tha)' reflects its relative risk positioning on the Thai national scale. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. BAY's Long-Term IDR of 'A-' is higher than Thailand's sovereign rating of 'BBB+' due to support from MUFG, and BAY's National Rating is in line with the approach taken for other entities operating in Thailand with similar Long-Term IDRs.
BAY's Thai baht senior debt is rated at the same level as its National Long-Term Rating, as the instruments represent unsubordinated and unsecured obligations of the bank.
VR
BAY's Viability Rating (VR) reflects the bank's adequate franchise in Thailand, which supports its competitive position and long-term earnings prospects. BAY has a market share by assets of over 10%, and has been designated by the Bank of Thailand as a domestic systemically important bank. It has a broad range of operations and the scale to serve all key client segments - although it has particular expertise in retail banking and in serving multinational corporates. However, the bank's franchise remains smaller, and its capitalisation and earnings buffers are lower, than some of its large-bank peers in Thailand.
The VR also takes into account ordinary support from MUFG, such as credit facilities to support its operations and funding, which Fitch expects will continue. Fitch believes that ongoing liquidity support would be provided from group sources, if required.
SUBORDINATED DEBT
BAY's Basel III Tier 2 subordinated debt issuance is rated one notch below its National Long-Term Rating. Fitch notches once for loss-severity risk to reflect that there is no mandatory full writedown at non-viability. There is no notching for non-performance risk, as the instruments do not have going-concern loss absorption.
RATING SENSITIVITIES
IDRS, SUPPORT RATING, NATIONAL RATINGS AND SENIOR DEBT
BAY's Long-Term IDRs, Support Rating and National Ratings are most sensitive to the parent's ratings and perceived changes in the parent's propensity to support. A downgrade in MUFG's Long-Term IDR would likely indicate a change in MUFG's ability to support BAY, and hence would lead to a rating downgrade. However, an upgrade of MUFG's Long-Term IDR will not have an impact on the ratings, as BAY's Long-Term IDR is at Thailand's Country Ceiling while its Support Rating and National Ratings are at the highest end of their scales.
BAY's ratings could also be negatively affected by any perceived changes in MUFG's propensity to support BAY. For example, a sharp reduction in shareholding, or a decline in the level of integration with the group, could lead to ratings downside. However, Fitch does not expect such shifts in the near term.
BAY's senior debt ratings would be affected by the same considerations that affect its National Long-Term Rating.
VR
There may be upside to BAY's VR if it further strengthens its franchise without compromising its risk appetite (taking into account support from MUFG) to be more in line with larger domestic bank peers. This would manifest in sustained improvements in the bank's earnings capacity as well as above-sector-average asset quality metrics through the cycle.
A sudden and sharp deterioration in asset quality buffers and earnings could lead to downside in the bank's VR. BAY's core earnings metric in particular is currently at the lower end of the 'bbb' category. Although BAY's revenues appear broadly diversified, the bank could potentially be affected by intensified price competition, as well as a failure to control costs and achieve economies of scale.
SUBORDINATED DEBT
BAY's subordinated debt ratings are broadly sensitive to the same considerations that might affect the bank's National Long-Term Rating.
Please note that only the Bank Rating Criteria and the National Scale Ratings Criteria were used in the analysis for these ratings.
Additional information is available on www.fitchratings.com