Moody's: Distinct strategic orientations of three major Thai banks benefit credit profiles

Moody's Investors Service says that the different areas of focus of Thailand's (Baa1 stable) three largest banks, along with their strong underwriting discipline, will support their pricing power within their respective borrower segments amid weakening asset quality in the system.

The three banks are Bangkok Bank Public Company Limited (BBL, Baa1 stable, baa2), KASIKORNBANK Public Company Limited (KBank, Baa1 stable, baa2) and Siam Commercial Bank Public Company Limited (SCB, Baa1 stable, baa2).

"Although the three banks exhibit similarly strong financial fundamentals, BBL's focus on large corporate borrowers makes it asset quality more resilient to the moderately deteriorating trend expected in Thailand in 2015-16," says Daphne Cheng, a Moody's Analyst

"And while SCB and KBank have riskier business models in terms of their business focus, their higher margins allow them to absorb higher credit costs and adopt more aggressive write-off policies, which will support their above-industry-average profitability in the next 12 months," adds Cheng.

Cheng was speaking on the release of a new Moody's report on the three banks, entitled "Peer Comparison of Three Major Thai Banks".

Among the three banks, BBL is focused mainly on corporate loans, KBank on lending to small- and medium-sized enterprises (SMEs), and SCB on loans to individuals. These respective focus areas comprise at least 40% of loans at all three banks, lowering the intensity of direct competition among the three, says Moody's.

Moody's expects that BBL's larger international loan book and focus on large corporate borrowers in Thailand will support its asset quality, as leverage among these borrowers has not increased in recent years.

Thai SMEs and individuals, on the other hand, have steadily raised borrowings to high levels and are likely to have a harder time servicing loans as growth has slowed from 2013.

At the same time, BBL's corporate loans could come under pressure from declining interest rates, whereas KBank's focus on SMEs and SCB's focus on individuals have allowed them to raise lending yields and hence net interest margins, despite moderate loan growth. KBank and SCB also lead the industry in terms of developing fee income.

KBank's and SCB's strong profitability has allowed them to write off problem loans aggressively, resulting in lower headline non-performing loan (NPL) ratios than BBL, despite their higher NPL formation rates.

Moody's in June downgraded the foreign-currency senior unsecured debt ratings for the three banks, to Baa1 from A3. The action solely reflected Moody's updated bank rating methodology, which limits government-supported ratings to a government's own bond rating.