Fitch Ratings has revised the Outlook on Bank of Ayudhya Public Company Limited's (BAY) Long-Term Issuer Default Rating (IDR) and National Long-Term Rating to Negative from Stable. At the same time, Fitch has affirmed BAY's Long-Term IDR of 'BBB+' and National Long-Term Rating of 'AAA(tha)'. Fitch has also affirmed BAY's Short-Term IDR at 'F1', National Short-Term Rating at 'F1+(tha)' and Support Rating at '2'. All other ratings are not affected by the rating action.
The revised Outlook follows a similar rating action on the Long-Term IDR of BAY's parent, MUFG Bank, Ltd. (A-/Negative) on 4 August 2020; see, Fitch Revises Outlook on MUFG Group and Affiliates to Negative; Affirms Ratings, at www.fitchratings.com/site/pr/10131407
KEY RATING DRIVERS
BAY's IDRs, Support Rating and National Ratings are driven by Fitch's belief that the bank is a strategically important subsidiary of MUFG and would receive extraordinary support from its parent. MUFG owns 76.9% of BAY, and there are significant control and business linkages between the two entities, as well as ongoing financial support.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A revision of MUFG's Long-Term IDR to Stable would be likely to result in similar rating action on BAY's Long-Term IDR and National Long-Term Rating.
Potential upside to BAY's Long-Term IDR appears improbable due to the Negative Outlook. The Support Rating would be upgraded if the Long-Term IDR were to be upgraded. There is no upside to the National Long-Term Rating as it is at the highest point in the scale.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A reduced ability by MUFG to support BAY, as indicated by a downgrade of MUFG's Long-Term IDR, would be likely to lead to a downgrade of the subsidiary's Long-Term IDR and National Long-Term Rating.
A lower propensity by MUFG to support BAY would also be negative for the subsidiary's Long-Term IDR and National Long-Term Rating; this may be indicated by a decline in shareholding to below 75%, combined with a decline in management control and business linkages. However, Fitch does not expect this to occur in the near term.
Further details on BAY's key rating drivers and rating sensitivities, including discussion on its other ratings, are available at, Fitch Downgrades Bank of Ayudhya to 'BBB+'; Outlook Stable, at www.fitchratings.com/site/pr/10117077
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The IDRs, Support Rating, and National Ratings of BAY are linked to the credit profile of MUFG.
The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com