Moody’s Ratings has confirmed the Baa1/P-2 long-term and short-term foreign currency deposit ratings of Bangkok Bank Public Company Limited (BBL), as well as the (P)Baa1 foreign currency senior unsecured medium-term note program rating of the bank.
Moody’s has also affirmed the bank’s baa1 Baseline Credit Assessment (BCA) and Adjusted BCA, A3/P-2 LT and ST FC and local currency (LC) Counterparty Risk Ratings (CRRs), A3(cr)/P-2(cr) LT and ST Counterparty Risk (CR) Assessments, (P)Baa3 FC subordinate MTN program rating, (P)Ba1 FC preferred stock non-cumulative MTN program and (P)P-2 FC other ST rating.
At the same time, Moody’s has affirmed Bangkok Bank Public Company Ltd. (Hong Kong)’s Baa1 FC senior unsecured rating, (P)Baa1 FC senior unsecured MTN program rating, A3/P-2 LT and ST FC and LC CRRs, A3(cr)/P-2(cr) LT and ST CR Assessments, Baa3 (hyb) FC subordinate rating, Baa2 FC subordinate rating, (P)Baa3 FC subordinate MTN program rating, Ba1 (hyb) FC preferred stock non-cumulative rating, (P)Ba1 FC preferred stock non-cumulative MTN program rating and (P)P-2 FC other ST rating.
Moody’s has maintained the stable outlook where applicable.
Ratings Explanation
The affirmation of BBL’s Baa1 ratings and baa1 BCA reflects the bank’s strong solvency and liquidity because of its conservative risk culture and leading corporate banking franchise in Thailand.
The Baa1 ratings also incorporate Moody’s expectation of support from the Government of Thailand (Baa1 stable) in times of need, but they do not benefit from any uplift because BBL’s BCA is already at the same level as Thailand’s sovereign rating.
Moody’s expects BBL’s problem loan ratio to remain stable at 3.0% over the next 12-18 months, supported by the bank’s focus on corporate lending and geographical diversification outside of Thailand given the country’s muted economic growth. Its asset risk is also mitigated by BBL’s very large credit reserves, which accounted for around 10% of gross loans and 300% of problem loans as of the end of December 2023.
BBL has historically maintained a very high level of liquid assets on its balance sheet. The bank’s access to funding will also remain strong because of its extensive network and entrenched franchise in Thailand. Its average liquidity coverage ratio was 277% in the fourth quarter of 2023.
BBL’s return on tangible assets will likely remain stable at 1.0% over the next 12-18 months. Its profitability has been improving in recent years as a result of policy rate hikes. Although its net interest margin will likely contract with interest rates peaking and deposit costs catching up, the effect on its profitability will be offset by lower credit costs. Moody’s expects Bank Permata Tbk (P.T.) (Baa1 stable, baa3), BBL’s Indonesian subsidiary, will provide a gradual uplift to the parent bank’s profitability over the next 3-5 years.
BBL’s capitalization will likely increase further over the next 12-18 months as the bank’s internal capital generation has improved and will continue to outpace its capital consumption. The bank has been rebuilding its capitalization following its Bank Permata acquisition in 2020. It is targeting a Common Equity Tier 1 capital ratio of 16% over the next 12-18 months, up from 15.4% in 2023.
Factors that may result in a ratings upgrade or downgrade
An upgrade of BBL’s BCA and ratings is unlikely given that the bank’s BCA is already at the same level as Thailand’s sovereign rating.
Moody’s could downgrade BBL’s deposit and senior unsecured debt ratings if the bank’s BCA is downgraded by more than two notches. BBL’s BCA, Tier 2 and Additional Tier 1 debt ratings could be downgraded if the bank’s problem loan ratio increases to above 4.0% and its return on tangible assets falls to below 0.8%.
