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Credit rating

BAY's rating upgraded following acquisition

Standard & Poor's Ratings Services has raised the long-term issuer credit rating on Bank of Ayudhya (BAY) to "BBB+" from "BBB-", following Bank of Tokyo-Mitsubishi UFJ (BTMU)'s acquisition of a substantial stake in the Thai bank.

The outlook is stable. S&P also raised its short-term rating on the Thailand-based bank to "A-2" from "A-3"’. BAY’s ratings were placed on CreditWatch in July, with positive implications.

"We raised the rating on BAY because we expect the bank to benefit from potential parent group support following Bank of Tokyo-Mitsubishi UFJ’s acquisition of a substantial stake in the bank," said Standard & Poor’s credit analyst Cheul Soo Cho.

BTMU is the main operating bank of Mitsubishi UFJ Financial Group (MUFG).

S&P believes that BAY will be a "highly strategic" subsidiary of MUFG group. The rating on BAY is one notch lower than the ’a+’ group credit profile of MUFG group.

The rating agency noted that the rating could have been raised higher, but for Thailand’s sovereign credit rating which is at "BBB+". This contrains the rating of BAY, as S&P rarely rates banks above the long-term sovereign credit rating on their home country. "We generally consider it unlikely that such institutions would remain immune to changes in the domestic economy. Our assessment of BAY’s stand-alone credit profile remains ’bb+’."

The acquisition fits in with MUFG’s strategy to be one of the leading banking groups in Asia. The group can benefit from growth opportunities in Thailand, particularly because many Japanese manufacturers have operations there. BAY will benefit from a broader customer base following the merger of BTMU’s Thailand branch with BAY. BTMU’s majority shareholding could also help BAY to build relationships with foreign customers (particularly Japanese) in Thailand and expand its regional customer base through BTMU’s regional business network.

"The stable outlook on BAY reflects the outlook on the sovereign credit ratings on Thailand and our expectation that the bank will remain a "highly strategic" subsidiary of MUFG group," said Cho.

BAY’s rating may be lowered if the bank’s status within the MUFG group diminishes or we downgrade Thailand. Conversely, it may upgrade BAY if it raises the sovereign rating on Thailand.

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