Support ratings affirmed for 3 state banks

Fitch Ratings (Thailand) has affirmed the support ratings of the state-owned Bank for Agriculture and Agricultural Cooperatives, Government Housing Bank and Government Savings Bank at "2".

Given these banks' government ownership and public policy roles, Fitch believes there is a high probability that state support will be forthcoming, if necessary. But any change in the level of government ownership or support could affect the support ratings.

The Bank for Agriculture and Agricultural Cooperatives (BAAC), with assets of Bt588 billion, is the largest rural finance lender in Thailand.

For the fiscal year 2007/2008, it reported a net profit of Bt5.6 billion, almost double the Bt2.9 billion it earned in the previous year, due to higher loan growth and lower funding costs. Net interest margin remained relatively high at 5.6 per cent.

However, the BAAC's impaired loans more than doubled to Bt43.8 billion (9.8 per cent of lending) from Bt21.6 billion (5 per cent at end-March 2007), mainly as a result of the implementation of a more stringent loan classification under IAS39.

The Government Housing Bank (GH Bank), with assets of Bt636 billion, is the largest provider of mortgage finance in Thailand, mainly to lower- to middle-income borrowers, with a market share of about 38 per cent.

Net profit rose 59 per cent to Bt3.7 billion in 2007, due to improved loan yield, lower funding costs and stronger loan growth. Net interest margin, while improving, remains relatively low at 1.5 per cent.

Due to the stricter accounting standard IAS39, GH Bank's loan-loss provisioning more than doubled to Bt3.4 billion in 2007 and was expected to further increase in 2008 and 2009 as economic conditions have weakened sharply. Impaired loans, Bt52.5 billion or 8.8 per cent of total loans at end-2007, are also expected to increase due to stricter classification.

While GH Bank's liquidity ratios appear low, confidence in the bank is underpinned by full government ownership and support.

The Government Savings Bank, with assets of Bt757 billion, is the principal government-owned savings institution.

In 2007, GSB reported a net profit of Bt10.7 billion, despite higher provisions of Bt6.4 billion (37 per cent of pre-provision profit) due to stricter provisioning rules. The bank's net interest margin remained stable at about 3.5 per cent in 2007. Impaired loans rose slightly to Bt17.2 billion, but remain relatively low at 3.7 per cent of loans at end-2007.

GSB's capital base is the strongest of the three banks, with an equity/asset ratio of 11.5 per cent.