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Published on January 23, 2008

The move reflects expectations that the bank will report a profit in the first half of fiscal 2008 and pay the coupon on its hybrid notes.

The outlook on the counterparty credit ratings on TMB Bank is negative, indicating there is at least a one-in-three possibility of the bank's ratings being lowered in the intermediate term if there is continual material deterioration in its core earnings or asset quality.

The three-notch rating differential between the counterparty credit rating on TMB Bank ("BB+" / "Negative" / "B") and the issue rating reflects the junior subordinated nature and embedded interest-deferral feature of the hybrid notes, according to S&P's methodology.

The bank has successfully completed a capital-infusion exercise, and its adjusted total equity ratio improved to about 3 per cent in fiscal 2007, from 1.9 per cent in fiscal 2006. TMB Bank's core profitability has remained relatively stable, with net interest margin improving to 2.7 per cent and non-interest income increasing 25 per cent to Bt8.3 billion as of December 31. Nonetheless, non-performing loans increased 12.4 per cent to Bt72.4 billion in the fourth quarter of fiscal 2007.

"We will continue to closely monitor the bank for progress and signs of stability in its business and financial profiles, especially in the first quarter of fiscal 2008. The operating environment could remain challenging for TMB Bank as Thailand repairs its credit fundamentals after the completion of the parliamentary election on December 23, 2007," the rating agency said.

The bank must work with its new foreign partner, ING Bank, to complete the restructuring exercise and devise a new business strategy, which should be finalised by April.

"We expect benefits from a successful collaboration between TMB Bank and ING Bank in the medium term to include transfer of knowledge and technical skills in terms of products (especially in the areas of bancassurance and asset management), risk management and best practices," S&P said.

Complete rating information is available to subscribers of Ratings Direct, the real-time Web-based source for S&P's credit ratings, research and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on S&P's public website at www.standardandpoors.com www.standardandpoors.com - select your preferred country or region, then "Ratings" in the left navigation bar, followed by "Credit Ratings Search".

The Nation