KEY RATING DRIVERS
Shareholder Support Underpins Ratings: ICBCTL's ratings are driven by Fitch's expectation of a very high probability that its parent, Industrial and Commercial Bank of China (Thai) Public Company Limited (ICBCT; AAA(tha)/Stable), would provide extraordinary support, if needed. The ratings also take into consideration ICBCTL's support-driven credit profile relative to that of other entities within Fitch's Thai national rating universe.
Core Subsidiary of ICBCT: Fitch equalises the ratings of ICBCTL with those of ICBCT as we believe that the subsidiary is an integral part of its parent bank's retail banking business. ICBCTL is the hire purchase and leasing arm for ICBCT, and accounted for 36% of the parent's consolidated loans as of end-2023. ICBCTL's products also complement those of its parent bank and offer cross-selling opportunities and synergies with the parent bank's customer base.
Closely Integrated: ICBCT owns ICBCTL in full and exercises a high level of management control over its subsidiary. ICBCTL's operations, product development and risk-management processes are closely monitored by ICBCT. The subsidiary is also part of the parent's solo consolidation regulatory framework, which means it is closely regulated by the central bank and there are no restrictions on intra group lending. These close links and shared branding imply that any default by ICBCTL would carry material reputational risks for ICBCT.
Parent's Support Ability Intact: ICBCT's ability to support ICBCTL is reflected in the parent's ratings, which in turn are driven by our expectations of extraordinary support from its parent, Industrial and Commercial Bank of China Limited (ICBC; A/Negative), one of China's largest state banks. ICBCTL accounts for a substantial 22% of the parent bank's consolidated assets. However, we believe any required support would be immaterial relative to the resources of ICBC, the ultimate support provider.
For more information on ICBCT's rating, see "Fitch Affirms ICBC Thai at 'AAA(tha)'; Outlook Stable", published on 23 August 2024.
Near-Term Performance Pressures: ICBCTL's performance weakened in the past year as rising interest rates and weakening second-hand vehicle values posed challenges to Thailand's hire purchase market. The impaired-loan ratio rose to 1.6% in 2023 (2022: 1.2%) and reported pre-tax income/average assets declined to 1.0% (2022: 2.6%).
Fitch expects ongoing industry pressure to weigh on profitability in the near term. However, a tightening underwriting stance and its high loan-loss coverage ratio of 249% at end-December 2023 should help mitigate ongoing impairment risk. We also do not anticipate near-term profit pressure to significantly alter shareholder support prospects for ICBCTL.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
ICBCTL's ratings are sensitive to any deterioration in shareholder support prospects. For example, any negative rating action on ICBCT's National Ratings would indicate a deterioration in the parent's ability to support its subsidiary and would lead to similar rating action for ICBCTL. Regulatory changes that would constrain the parent bank's ability to support its subsidiary may also lead to a re-assessment of support.
Any material weakening in ICBCT's propensity to support ICBCTL would place downward pressure on the rating. This may occur if ICBCT plans to reduce its ownership in ICBCTL to below 75%, combined with declining management control and integration. However, Fitch does not expect any changes in the parent's propensity to support ICBCTL in the near to medium term.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
There is no upside as the ratings are already at the top end of the National Rating scale.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
ICBCTL's senior unsecured notes are rated 'AAA(tha)' and 'F1+(tha)', the same as the company's National Long- and Short-Term Ratings, as the instruments represent its unsecured and unsubordinated obligations and rank equally with other similar obligations.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
ICBCTL's senior unsecured debt ratings would move in tandem with its National Long- and Short-Term Ratings.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
ICBCTL's ratings are linked to ICBCT's ratings.
Source: Fitch Ratings