(The following statement was released by the rating agency)
Jan 15 -
Summary analysis -- Siam Commercial Bank Public Co. Ltd. ---------- 15-Jan-2013
CREDIT RATING: BBB+/Stable/A-2 Country: Thailand
Primary SIC: Commercial banks,
Mult. CUSIP6: 825715
Mult. CUSIP6: 82571A
Mult. CUSIP6: 82571B
Credit Rating History:
Local currency Foreign currency
23-Dec-2010 BBB+/A-2 BBB+/A-2
27-Sep-2005 BBB/A-2 BBB/A-2
Ratings Score Snapshot
Issuer Credit Rating BBB+/Stable/A-2
Business Position Strong (+1)
Capital and Earnings Adequate (0)
Risk Position Adequate (0)
Funding and Liquidity Average
and Adequate (0)
GRE Support 0
Group Support 0
Sovereign Support +1
Additional Factors 0
Our stable outlook on Siam Commercial Bank Public Co. Ltd. (SCB) reflects our expectation that the bank's business position is likely to remain strong and that SCB will largely maintain its financial profile.
We could lower the ratings on the bank if: (1) we lower the sovereign rating; or (2) the bank's stand-alone credit profile (SACP) deteriorates by two notches to 'bb+'. The possibility of multiple notch lowering of the SACP is remote for the next two years at least. The SACP could, however, deteriorate if we lower the BICRA score, or if the bank's aggressive growth leads to a sharp fall in its capitalization or asset quality.
We could upgrade the bank following a similar rating action on the sovereign coupled with SCB maintaining its financial and business profile.
Standard & Poor's Ratings Services bases its ratings on SCB on the bank's "strong" business position, "adequate" capital and earnings, "adequate" risk position, "average" funding, "adequate" liquidity, and expectations of extraordinary government support, as defined under our criteria. The SACP is 'bbb'.
Our bank criteria use the Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating (ICR). The anchor for a bank operating only in Thailand is 'bbb-'. The BICRA score is based on our evaluation of economic risk. In our view, Thailand's relatively low income levels, underdeveloped infrastructure, and delayed structural reforms constrain its economic resilience. The recent high growth has led to build up of an economic imbalance in the country. Economic imbalances could heighten over the next year if loan growth continues to significantly outpace the rise in nominal GDP or if housing prices rise steeply. Moreover, given the slow pace of improvement in the legal framework, we view credit risk in Thailand to be high. A large proportion of highly stable core customer deposits support the banking industry's profile. We note that regulations have improved considerably since the Asian financial crisis highlighted weaknesses. Regulations are now broadly in line with international standards.
SCB's "strong" business position reflects the bank's strong domestic business franchise, prudent and proactive management, and better income diversity than peers'. SCB is the third-largest bank in Thailand in terms of deposit base and is a leader among the Thai commercial banks in the mortgage segment. SCB's revenues are well diversified, with fee income and net insurance income together forming 29% of revenues for the nine months ended Sept. 30, 2012--one of the highest for our rated Thai banks. Fee income, which is mostly from the retail segment, is diversified across card business, lending, and mutual funds. The bank's risk management practices are better than other Thai banks'. Moreover, SCB has substantial exposure to the mortgage segment, which we consider to be relatively low risk.
SCB's capital and earnings are "adequate," based on the bank's high quality of capital and earnings, and our expectation that the pre-diversification risk-adjusted capital (RAC) ratio, which is 6.8% as of Dec. 31, 2011, will remain around similar levels in the next 12-18 months. The bank's earnings profile is the strongest among rated Thai peers and we expect it to improve further. However, we also anticipate that loans will grow aggressively and that strong earnings will likely to be just about sufficient to compensate for that. Nevertheless, SCB's capital and earnings profile could deteriorate if the bank grows faster than our expectation.
SCB's risk position is "adequate" and reflects the bank's prudent risk management practices and lower credit costs than peers'. Its retail loan book is about 41.6% of its total loan portfolio; the proportion is much higher than the industry average. Moreover, the bank has substantial exposure to the low-risk mortgage (27% of loan book) segment. This has also led to a better credit cost experience for SCB. The bank's exposure is well diversified. Nevertheless, SCB has been growing consistently higher than the industry average, at an average 13% annually since 2007. The bank's strategy is to gain market share in the medium term in the small and midsize enterprise (SME) and auto segments. We expect SCB's credit cost experience to remain better than the industry average. However, if aggressive growth--particularly in a higher-risk segment such as SME--is not managed well, it could hurt asset quality and increase the bank's credit cost.
SCB has an "average" funding profile and "adequate" liquidity. Core deposits form about 87% of the funding base as of Sept. 30, 2012. SCB's loan-to-deposit ratio is 93% as of Sept. 30, 2012, comparable with the industry average. The bank's sizable holdings of government bonds and central bank balances underpin its liquidity.
The ICR on SCB is one notch above the SACP reflecting our view of a high likelihood of support due to the bank's high systemic importance in Thailand (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; axAA/axA-1) and our assessment of the government as "highly supportive." SCB's systemic importance emanates from its size and market share (the bank accounted for about 16% of deposits in Thailand as of Sept. 30, 2012).
Related Criteria And Research
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010