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Moody’s affirms Bangkok Bank’s ratings on Bank Permata takeover

Bangkok Bank Plc agreed to buy 89.1% of Indonesia’s PT Bank Permata for about US$2.7 billion.

Boris Sullivan

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Singapore, December 18, 2019 — Moody’s Investors Service has today affirmed the Baa1 foreign currency long-term bank deposit ratings of Bangkok Bank Public Company Limited’s (BBL) with a positive outlook.

Moody’s has also affirmed BBL’s Baseline Credit Assessment (BCA) and adjusted BCA at baa1.

BBL’s outlook is positive, in line with the positive outlook on Thailand’s sovereign rating (Baa1 positive).

Ratings rationale

Today’s rating action follows the announcement by BBL on 12 December 2019 that it will acquire a 89.12% stake in Bank Permata Tbk (P.T.) (Baa3 review for upgrade, ba1) from Standard Chartered Bank (A1 stable, baa1) and PT Astra International Tbk.

The transaction is subject to regulatory approvals from the Bank of Thailand and Indonesia’s Financial Services Authority, as well as approval from the BBL’s shareholders. The affirmation of BBL’s baa1 BCA reflects Moody’s expectation that the bank’s standalone credit profile, as reflected by its solvency and liquidity, will broadly remain stable after the planned acquisition.

The proposed acquisition will weaken BBL’s capitalization, because the bank plans to fund the purchase with internal resources and funding sources other than new equity. Also, Bank Permata’s asset quality, as reflected by its stock of non-performing loans and performing restructuring loans, is weaker than that of BBL.

Nevertheless, Moody’s expect that the impact on BBL’s financial profile from the acquisition is manageable in terms of asset quality and liquidity because of Permata’s relatively small balance sheet compared to the acquirer.

Also, BBL’s strong funding and liquidity, as reflected by its dominant market share in Thailand, will also continue to support its standalone credit profile. BBL’s baa1 adjusted BCA is in line with its baa1 BCA, because the bank does not benefit from affiliate support. The affirmation of the ratings of Tier-2 securities reflects the fact that ratings and assessments are notched from BBL’s adjusted BCA.

Moody’s affirmation of BBL’s Baa1 foreign currency long-term bank deposit ratings and A3 long-term counterparty risk ratings and A3(cr) counterparty risk assessments take into account the bank’s baa1 adjusted BCA and Moody’s assumption of very high level of support from the Government of Thailand during times of stress.

The support assumption is based on the bank’s systemic importance arising from its 11% and 13% market shares in system loans and deposits, respectively, as of 30 June 2019. Moody’s does not have particular governance concerns for BBL and does not apply corporate behavior adjustment to the entities.

WHAT COULD CHANGE THE RATINGS UP

Bangkok Bank’s foreign currency long-term senior unsecured and bank deposit ratings could be upgraded if the sovereign rating is upgraded.

WHAT COULD CHANGE THE RATINGS DOWN

Factors that could result in a downgrade include a downgrade of Thailand’s sovereign rating. Bangkok Bank’s BCA could be downgraded if its asset quality and capital deteriorate significantly post-acquisition.

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