Fitch Upgrades UOBT#s Short-Term IDR to #F1#; Affirms Long-Term IDR at #A-#

Stocks and Financial Services Press Releases Tuesday September 3, 2019 16:03
Bangkok--3 Sep--Fitch Ratings
Fitch Ratings has upgraded United Overseas Bank (Thai) Public Company Limited's (UOBT) Short-Term Issuer Default Rating (IDR) to 'F1' from 'F2', and affirmed its Long-Term IDR at 'A-' with a Stable Outlook.

The Short-Term IDR has been upgraded because Fitch has assessed that the prospects of extraordinary support from UOBT's parent, Singapore-based United Overseas Bank Limited (UOB, AA-/Stable/F1+), have become more certain in the near term. UOBT is well-integrated with its parent, and plays a key role in the group's strategy in the region. Furthermore, there are no clear impediments to funding support from the group to UOBT.

A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, SUPPORT RATING, NATIONAL RATINGS AND SENIOR DEBT

The bank's IDRs, Support Rating, National Ratings and senior debt ratings reflect Fitch's expectations of extraordinary support from its parent. UOB owns nearly 100% of UOBT, and there are clear linkages in terms of management, operations and branding. UOB has had a subsidiary presence in Thailand since 1999, and UOBT's corporate culture and systems are closely aligned with those of its Singapore parent.

UOBT's National Long-Term Rating of 'AAA(tha)' reflects its relative risk positioning on the Thai national scale. This rating is assigned to issuers with the lowest expectation of default risk relative to other issuers in the country. UOBT's rating is driven by support from UOB, which has a rating multiple notches higher than Thailand's sovereign rating of 'BBB+'. UOBT's National Rating is in line with the approach taken for other entities in Thailand with similar Long-Term IDRs.

UOBT'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

UOBT's Viability Rating (VR) reflects the bank's improving financial performance and adequate capital buffers. The bank has built up its franchise in the mortgage segment and in serving cross-border customers. However, UOBT remains relatively small in the Thai market; for example, its deposit market share is only 3%. This leads to constraints on revenue diversity and cost efficiency compared with larger banks in Thailand. The VR incorporates ordinary support from UOB, such as in management, marketing, and operations, which Fitch expects to continue.

The operating environment is affected by muted economic growth prospects amid regional uncertainties. However, Fitch does not expect in its base case scenario that the operating environment will be a key negative factor in UOBT's asset quality - the bank has shown a consistent risk appetite, and its impaired loans ratio has been better than sector averages. Nevertheless, the Bank of Thailand's macro-prudential measures in April 2019 on mortgage lending signal the central bank's concerns on household debt, and may lead to lower growth in that segment.

SUBORDINATED DEBT

UOBT's Basel III Tier 2 subordinated debt is rated one notch below its National Long-Term Rating. The notching reflects that there is no mandatory full write-down at the point of 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

UOBT's Long-Term IDRs, Support Rating, National Ratings and senior debt are sensitive to potential changes in the parent's ability and propensity to support the bank. However, there would need to be a multiple-notch downgrade of UOB's Long-Term IDR, before there would be a downgrade of these ratings at UOBT.

This is because UOBT's Long-Term IDR is constrained by Thailand's Country Ceiling of 'A-'. Any changes in the Country Ceiling would probably lead to a similar change in UOBT's Long-Term IDR. Meanwhile, there is no upside to the National Ratings or the Support Rating, which are already at the top end of their scales.

VR

There may be upside to the VR if Fitch assesses that UOBT's expansion would lead to sustained improvements in profitability, such as in the operating profit/risk-weighted assets ratio, and the bank maintained a conservative, consistent risk appetite. Conversely, there could be downside if UOBT's capital and asset quality buffers were to deteriorate sharply for a sustained period, although this is not Fitch's base case expectation.

SUBORDINATED DEBT
UOBT's subordinated debt ratings are broadly sensitive to the same considerations that may affect the bank's National Long-Term Rating.
ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

For more information on our ESG relevance scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com

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