Thailand Financial News

Moody’s Investors Service has upgraded Krung Thai Bank’s (KTB) bank financial strength rating (BFSR) to “D-” from
“E+”. KTB’s debt and deposit ratings, which were not on review, are unaffected. The outlooks on all ratings are now stable. The bank’s deposit and debt ratings already incorporate government support, lifting them above the rating level typically associated with its intrinsic financial strength.

This rating action concludes the review announced on March 28, 2006. “The upgrade reflects KTB’s progress in restoring its balance sheet, in particular its economic solvency (capital adjusted for possible additional loan losses), and the vast improvement it has achieved in risk management,” says Leo Wah, a Moody’s Assistant Vice President/Analyst. Despite the tightening of NPL classifications over the past few years, KTB has managed to maintain positive economic solvency and meet all regulatory capital adequacy standards. Having improved its risk management over the last several years thanks to the efforts by bank management, KTB in Moody’s opinion should be able to secure steady earnings without making substantial provisions for new NPLs in the future. Moody’s expects KTB’s regulatory capital and economic solvency
to continue to improve as a result, although the pace may be slow and Moody’s estimate of economic solvency may stay at low single-digit percentages of risk-weighted assets for a couple of years. “Without a significant injection of capital, KTB will continue to rely on internal resources to reduce NPLs and increase its loan loss reserves,”  says Wah, Moody’s lead analyst for the bank, adding, “It needs to quickly remedy these areas to secure ratings similar to other large Thai banks.” KTB’s loan loss reserve amounted to 41% of NPLs, significantly lower than the 77% average for other large Thai banks. Its pace of NPL reduction (11% versus 10%) over the long term may lag behind its counterparts given the bank’s slow accumulation of capital, partly attributable to its relatively high dividend payout of 40%. As such, KTB lies at the low end
of its “D-” peers. For future rating actions, Moody’s will focus on the following developments: 1) how quickly KTB can build up its economic solvency to a relatively more comfortable solvency level, like 4% to 6%; 2) whether NPL reductions and loan loss reserve accumulation achieve levels comparable to other large Thai banks; 3) if KTB’s risk management can continue to
improve; and 4) how far it can free itself from any policy role. At the same time, the rating agency does not expect these developments to change KTB’s risk profile substantially over the next couple of years; hence the stable outlook. Headquartered in Bangkok, KTB is Thailand’s second largest bank, with total assets of Bt 1,160 billion (US$29 billion) as of December 31, 2005. The following rating was upgraded: Krung Thai Bank — Bank financial strength rating to “D-” from “E+”. The outlook was changed to stable. The following ratings were unaffected: Krung Thai Bank — Foreign currency deposit ratings of Baa1 and Prime-2.
The rating outlook is stable. Krung Thai Bank, Singapore branch — Foreign currency deposit note and subordinated debt of Baa1 and Baa2 respectively. The rating outlook is stable. Hong Kong
Leo Wah, CFA Singapore
Beatrice Woo