Thailand Financial News

Fitch Ratings-Bangkok/Singapore-31 October 2006: Fitch Ratings (Thailand) today upgraded the National Long-term rating of Export-Import Bank of Thailand (”EXIM”) to ‘AAA(tha)’/ Outlook Stable from ‘AA+(tha)’ following Fitch’s re-assessment of the government’s probability and propensity of support to the wholly-owned government policy bank.

Fitch has also affirmed EXIM’s Long-term foreign currency Issuer Default rating (”IDR”) at ‘BBB+’/ Outlook Stable, Short-term foreign currency at ‘F2′, National Short-term rating at ‘F1+(tha) and Support rating at ‘2′. Given its status as a quasi-sovereign, EXIM’s ratings should generally move in tandem with those of the sovereign. Under the Export-Import Bank of Thailand Act (”EXIM Act”), if EXIM suffers losses from undertaking business in accordance with its mandated policy role, the Ministry of Finance (”MOF”) is required to appropriate funds from consolidated revenue to compensate EXIM for these losses. Similarly, losses on export and investment insurance are also protected. Notwithstanding the limits on the guarantee, given the MOF’s full ownership and control of the bank, as well as EXIM’s development policy role, Fitch believes that there is a high probability that state support would be forthcoming, if necessary. EXIM plays a key role in providing export insurance and financing to Thai exporters and Thai investors overseas. The bank directly provides revolving lines of credit for pre-shipment financing, which makes up the bulk of its lending portfolio. It is aiming to sustain its growth by providing more long-term loans to merchant marine sector customers and export-related manufacturers, and to fund investment projects in other emerging markets. In 2005, EXIM had net income of THB457m, down from THB477.2m the prior year. The fall was due mainly to higher funding costs, larger losses from debt restructuring and increased operating expenses. In H106, EXIM reported net profit of THB141.6m, down from THB203.1m in H105, as a result of higher provisions and losses from debt restructuring and lower bad debt recovery. Pre-shipment financing rose by 25.6% and the total loan portfolio grew by 22.2% in 2005, but they shrank slightly by 1.3% and 2.2% year-to-date respectively in H106 mainly as a result of a stronger baht. The net interest margin (”NIM”) fell to 2.11% (annualised) in H106, due to competition from commercial banks. Impaired loans rose to THB7.7bn or 13.3% of total loans at end-June 2006, up from THB6.4bn or 10.8% at end-2005. Loan loss reserves (”LLRs”) amounted to THB5.8bn (75.6% of impaired loans), which appears to be relatively high, but would fall to 53.6% if outstanding restructured loans were considered. Although EXIM’s reserve coverage is strong, given its policy role, asset quality risks remain a concern, particularly given its growing amount of lending to offshore investment projects. EXIM is strongly capitalised, with Tier 1 capital of 16% at end-June 2006, reflecting solid government support, although asset growth may see this ratio decline in 2007 and 2008. EXIM commenced operations in 1994 under the supervision of the MOF and examination by the Bank of Thailand (”BOT”). The EXIM Act gives the MOF power to appoint and remove directors and to supervise its general administration. The bank’s main objective is to promote export business and Thai investments abroad, and the scope of EXIM’s activities is limited to those specified under the EXIM Act. It is restricted from accepting public deposits. Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.