Thailand Financial News

Fitch Ratings has today affirmed Bank of Ayudhya Public Company Limited’s (BAY) Foreign Currency Issuer Default Rating at ‘BBB-’ (BBB minus) with Stable Outlook, Short-term Foreign Currency rating at ‘F3′, Individual rating at ‘C/D’, Support rating at ‘3′ and its subordinated debt rating at ‘BB+’.

The bank’s Support Rating Floor remains unchanged at ‘BB’. Meanwhile, Fitch Ratings (Thailand) has also affirmed BAY’s National Long-term Rating at ‘A+(tha)’ with Stable Outlook, its National Short-term Rating at ‘F1(tha)’ and its National subordinated debt rating at ‘A(tha)’. In January 2007, Fitch Ratings upgraded BAY’s ratings after GE Capital International Holdings Corporation (GECIH) completed the acquisition of a 29% stake in the bank. BAY’s major shareholder, the Ratanarak family, and other warrant holders also made an early conversion of 463 million warrants. This capital raising exercise should address BAY’s loan loss reserve and capital adequacy weaknesses, which had in part, previously constrained the bank’s ratings. It should also bolster the bank’s franchise in the medium term. GECIH has strong representation at both the board and senior management levels of BAY, including the newly appointed CEO and CFO. BAY could also benefit from GECIH’s expertise in global transaction services, technology and operations. The shift towards higher-margin consumer banking should, additionally, help improve the bank’s profitability in the medium term. The Outlook is Stable given BAY’s strong capital buffer and improving profitability, although the bank faces a more challenging operating environment in 2007, as well as the risk of additional provisioning. Future rating actions will depend on a further strengthening in the balance sheet and profitability, as well as in the franchise and the level of capital and operational support from GECIH. Given BAY’s relatively large share of deposits and loans, there is a moderate probability of government support, should this be needed. BAY reported net profit of THB1.5 billion in 2006, down from THB6.1bn the previous year due to higher provisions as the bank had to comply with the first phase of the new IAS39 provisioning rule. Nonetheless, BAY’s underlying profit continued to strengthen as its pre-provisioning profit before tax increased by 5.8%, helped by improved fee-based activities and higher lending rates. In Q107, BAY’s pre-provisioning profit before tax fell by 24% on higher funding costs and operating expenses while its net profit also declined to THB1.1bn, down from THB1.8bn in Q106 partly due to tax expenses. Impaired loans remained relatively high at THB66.2bn, or 14.2%, of total loans at end-Q107. Although BAY’s loan loss reserve coverage has continued to improve, rising to 44.7% of NPLs at end-March 2007, the ratio is still low compared with its peers. On the back of its strengthened capital position, Fitch expects the bank to accelerate the clean up of its balance sheet by way of large-scale provisioning or write-offs in 2007 and 2008. After the capital injection of THB27.8bn in January 2007, BAY’s Total capital ratio and Tier 1 capital ratio rose to 17.4% and 13.2%, respectively, at end-March 2007. Additional provisioning and asset growth will probably cause the ratios to fall in the next two years. BAY was established in 1945 and is Thailand’s sixth-largest commercial bank, with 561 branches and market shares of 8.7% in lending and 9.4% in deposits. It has affiliates in finance, securities, insurance, fund management, factoring and leasing.

Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759.