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Fitch Affirms Three Thai Policy Banks

          Fitch Ratings has affirmed three Thai policy banks, Government Housing Bank (GHB), Government Savings Bank (GSB), and Bank for Agriculture and Agricultural Cooperatives (BAAC). GHB's National Ratings have been affirmed at Long-Term 'AAA(tha)' with Stable Outlook and Short-Term 'F1+(tha)'. The Support Ratings of GHB, GSB, and BAAC have been affirmed at '2'. 

          Rating Action Rationale
          The ratings of the three policy banks reflect Fitch's view of a high probability that state support on a timely basis, if necessary. This is based on their strong linkages to the government given their full state ownership, legal status as a state enterprise set up under specific law, and tight state control. The ratings also reflect their unique policy roles in providing support to low-income groups and social development policies. The policy roles of the three banks should remain vital to national welfare and long-term economic and social development.

          Rating Drivers and Sensitivities
          A change in Thailand's Foreign-Currency Long-Term IDR ('BBB'/Stable) to the 'A' or 'BB' category would affect the Support Ratings of the three banks. However, this is unlikely based on the sovereign's Stable Outlook. Any perceived change in the sovereign's propensity or capacity to support would also affect the ratings. In this regard, a legal amendment or a change in legal and ownership status that results in the weakening of potential state support could lead to a downgrade of the banks' Support Ratings and GHB's National Long-Term rating. However, this is unlikely given the banks' key policy role. The Stable Outlook on GHB reflects Fitch's expectations that the government will continue to support the bank in case of need.
          Based on the respective Acts, GSB is the only policy bank with an explicit state guarantee on all of its liabilities. BAAC and GHB, in Fitch's view, benefit from strong implicit financial support based on past capital injections, debt guarantee, and compensation for losses from policy-directed activities.
While financial support from the state generally requires the cabinet approval, the process could be accelerated to ensure timely support, if needed. Nevertheless, the government has been closely monitoring the three banks' financial position to prevent such emergencies. All three banks are under the supervision of the Ministry of Finance. Their operations are audited by the Bank of Thailand, while financial statements are audited by the Office of Auditor General. The banks' Board of Directors is appointed by the Cabinet. 
          GSB's (asset size of THB1.9trn at end-September 2012) key policy roles include promoting domestic savings, providing credit to lower income borrowers and civil servants and supporting the government's social development policies. BAAC (THB1trn at end-June 2012) is the government's key entity in promoting agricultural and rural development. GHB (THB721.7bn at end-June 2012) mainly provides housing finance to low- and middle-income groups and civil servants.