OREANDA-NEWS. Fitch Ratings has affirmed the ratings on three Thai medium-sized banks: Bank of Ayudhya Public Company Limited (BAY), Thanachart Bank Public Company Limited (TBANK), and TMB Bank Public Company Limited (TMB). Fitch has also affirmed the ratings on TBANK's parent Thanachart Capital Public Company Limited (TCAP), and revised the Outlooks on TBANK's Long-Term Issuer Default Rating (IDR) and National Long-Term Rating to Stable from Negative.

Fitch has simultaneously withdrawn TBANK's Long-Term and Short-Term IDRs, Support Rating, and Support Rating Floor, and TCAP's Support Rating and Support Rating Floor. These ratings are withdrawn as they are no longer considered by Fitch to be relevant to the agency's coverage.

A full list of rating actions is included at the end of this commentary.

KEY RATING DRIVERS - VRs

The Viability Ratings (VRs) of BAY, TBANK and TMB reflect their reasonable domestic franchises as medium-sized commercial banks in Thailand. The banks are the fifth, sixth, and seventh largest banks respectively, with deposit market shares in excess of 5.0%.

The operating environment remains weak and is an important factor for the VRs. There are no clear signs of a robust economic recovery, and there are high levels of private-sector leverage. These external factors could pressure asset quality at all three banks.

BAY's integration with the Bank of Tokyo Mitsubishi UFJ, Ltd.'s (BTMU; A/Stable) Bangkok branch in January 2015 will lead to a more diversified portfolio and greater strength in corporate banking. Fitch believes that capitalisation should remain adequate for growth.

TBANK's overall credit profile remains satisfactory and in line with similarly-rated regional peers, despite the weak operating conditions recently seen in its core hire purchase business. TBANK also benefits from ordinary support from its 49% shareholder the Bank of Nova Scotia (AA-/Stable), which includes management and operational support as well as an uncommitted credit facility.

TMB's ratings are supported by continued improvements in its financial performance. TMB's earning further improved in 2014, while its NPL ratio has declined and its reserve coverage ratio is among the highest in the industry.

RATING SENSITIVITIES - VRs

BAY's VR could be pressured by a significant decline in capitalisation or loan loss reserve buffers. Meanwhile, there could be upside to the VR if the integration with BTMU results in a stronger profitability and capitalisation measures, although Fitch views that operational and implementation challenges from the integration are high.

TBANK's recent sound performance, including improvements in capitalisation and asset quality has reduced the risk of a downgrade and led to the revision in the Outlook. However, the VR would face pressure if there was a significant reversal of recent improvements in asset quality, leverage, and liquidity. Any indications of reduced ordinary support from Bank of Nova Scotia to TBANK could also have a negative ratings impact.

TMB's VR could be hurt by a major deterioration in TMB's financial performance from a weak economy or from an increase in the bank's risk appetite. Meanwhile, the bank's ability to maintain or improve its financial performance and a clear improvement in its domestic franchise would be positive to the ratings.

KEY RATING DRIVERS - IDRs, National Ratings and Senior Debt

BAY's IDRs, National Ratings, and senior debt rating reflects the strong probability of support from BTMU, its 76.9% shareholder. Fitch considers BAY a strategically important subsidiary of BTMU, and a key part of the group's regional banking strategy.

TBANK and TMB's IDRs, National Ratings, and Senior Debt are driven by their VRs.

The revision of TBANK's rating Outlook to Stable from Negative reflects Fitch's expectation that TBANK could manage through the weak operating environment as evidenced in its performance in 2014. Fitch also believes TBANK's improved loan loss reserve coverage and Tier 1 capital are satisfactory buffers against the downside risks.

TCAP's National Ratings are notched down from its core operating subsidiary TBANK, to reflect its structural subordination, and the presence of large minority interests. The Outlook matches that of TBANK.

RATING SENSITIVITIES - IDRs, National Ratings and Senior Debt

BAY's Long-Term IDR is already at the Country Ceiling, while its National Long-Term Rating is the highest on the national scale. However, the ratings may be impacted by any perceived reduction in BTMU's propensity to support BAY, such as through a material reduction in shareholding, although such an action appears unlikely in the short-term. A downgrade at BTMU could also have a similar negative impact on BAY's ratings.

The IDRs and National Ratings of TBANK and TMB would be impacted by any changes in their VRs.

Any change in TBANK's National Ratings could have a corresponding impact on TCAP.

KEY RATING DRIVERS - Support Rating and Support Rating Floor

TBANK's and TMB's Support Rating and Support Rating Floors (SRF) reflect that they are of some systemic importance to the financial sector, with a moderate probability of state support in case of need, although such probability is likely to be lower compared to the top-four commercial banks in Thailand.

BAY's Support Rating is driven by institutional factors, reflecting Fitch's view on its strategic importance to the BTMU group.

RATING SENSITIVITIES - Support Rating and Support Rating Floor

Any very significant change to the market shares of TBANK and TMB could have an impact on the Support Rating and SRF of the banks, although Fitch believes this would be unlikely in the short to medium term.

Any reduction in BAY's level of importance to the BTMU group could lead to a change in its Support Rating, though given the group's recent moves to increase its shareholding in BAY this appears unlikely in the short term.

KEY RATING DRIVERS - Subordinated debt

BAY's legacy (Basel II) subordinated debt is rated at 'AA+(tha)', one notch below BAY's National Long-Term Rating of 'AAA(tha)' to take into account their subordination in the capital structure.

TMB's Basel III Tier 2 notes are rated one notch below TMB's National Rating to reflect their higher loss-severity risk relative to senior unsecured instruments arising from their subordinated status. Key terms of the notes include a partial rather than mandatory full write-down feature, and there is no going-concern loss absorption features.

RATING SENSITIVITIES - Subordinated debt

BAY's subordinated debt would be impacted by changes in its support-driven National Rating.

TMB's subordinated notes would be impacted by any changes in its stand-alone credit profile, which would impact the National Rating.

The list of rating actions is as follows:

BAY
Long-Term IDR affirmed at 'A-'; Outlook Stable
Short-Term IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(tha)'
National long-term senior unsecured debt affirmed at 'AAA(tha)'
National short-term senior unsecured debt affirmed at 'F1+(tha)'
Legacy Basel II subordinated debt affirmed at 'AA+(tha)'

TMB
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
Short-Term IDR affirmed at 'F3'
USD3.0bn senior unsecured medium-term note programme affirmed at 'BBB-'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'
National Long-Term Rating affirmed at 'A+(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1(tha)';
National subordinated debt rating affirmed at 'A(tha)'

TBANK
Long-Term IDR affirmed at 'BBB-'; Outlook revised to Stable from Negative, and withdrawn
Short-Term IDR affirmed at 'F3', and withdrawn
Viability Rating affirmed at 'bbb-', and withdrawn
Support Rating affirmed at '3', and withdrawn
Support Rating Floor affirmed at 'BB+', and withdrawn
National Long-Term Rating affirmed at 'A+(tha)'; Outlook revised to Stable
National Short-Term Rating affirmed at 'F1+(tha)'

TCAP
National Long-Term Rating affirmed at 'A(tha)' ; Outlook revised to Stable from Negative
National Short-Term Rating affirmed at 'F1(tha)'
Support Rating affirmed at '5', and withdrawn
Support Rating Floor affirmed at 'No Floor', and withdrawn