Fitch Ratings has today affirmed United Overseas Bank (Thai) Public Company Limited's (UOBT; formerly Bank of Asia) Long-term foreign currency Issuer Default Rating (IDR) at 'A-' (A minus), short-term foreign currency IDR at 'F2', National Long-term rating at 'AA+(tha)', National Short-term rating at 'F1+(tha)' and Support rating at '1'. The Outlook is Stable. At the same time, the agency has upgraded UOBT's Individual rating to 'C' from 'C/D', due to improved asset quality, capital and performance. However the bank remains constrained by its small size and weaker franchise, compared to Thailand's three largest private banks.
The ratings are based on its parent, United Overseas Bank of Singapore (UOB, 'AA-'(AA minus)/Stable) remaining the major shareholder with a 99.6% stake. Given the reputation and resources of UOB, and the close brand association, Fitch believes there is an extremely high probability that support would be forthcoming, if needed.
UOBT's H108 results showed a strong improvement, with net income rebounding to THB0.9bn (H107: net loss of THB0.9bn) as provisioning fell and loan growth picked-up. Net interest margin (NIM) also improved to 3.4% in H108 from 3.1% in H107 due to loan growth and lower cost of funds. The cost-to-income ratio also improved to 62% from 73% at end-2007, due to flat expenses while net interest revenues rose. UOBT's impaired loans dropped sharply to THB7.6bn (about 5% of loans, down from 12% at end-2006) following the sale of NPLs of about THB11bn in 2007. However, the outlook remains challenging due to domestic political unrest and global economic shocks, which could result in renewed asset quality pressures.
Deposits accounted for 80% of funding, although more than 83% of this is short term (less than six months). But with about 20% of its loans on call and a large government bonds portfolio (about 10.5% of assets), this should help mitigate the liquidity risks. UOBT's Tier 1 capital and total capital ratios rose to 17.6% and 18.9% of risk-weighted assets, respectively, at end-June 2008, following a THB2.3bn rights issue in March 2008, which should provide a strong cushion to absorb an expected sharp economic slowdown in 2009.
UOBT was established in 1939 and acquired by Singapore's UOB in 2004. Thailand is a key market for the parent bank outside of its home base along with Malaysia, Indonesia and China. UOBT is Thailand's 10th largest commercial bank, with over 150 branches and 3% of system loans and deposits. UOB has the second-largest deposit base among Singapore-based banks. UOB reported total assets of USD132.8bn at end-June 2008 and a net profit of USD0.8bn for H108.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Contacts: Darunee Peanmanakit, Patchara Sarayudh, Vincent Milton, Bangkok, +662 655 4755.
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