OREANDA-NEWS. Fitch Ratings has today affirmed the ratings on Thailand's four largest commercial banks. The Long-Term Issuer Default Ratings (IDRs) on Bangkok Bank Public Company Limited (BBL), Kasikornbank Public Company Limited (KBank) and Siam Commercial Bank Public Company Limited (SCB) have been affirmed at 'BBB+', while the Long-Term IDR of Krung Thai Bank Public Company Limited (KTB) has been affirmed at 'BBB'. Fitch has also affirmed the National Long-Term Ratings of two of the banks' subsidiaries - Kasikorn Securities Public Company Limited (KS) and SCB Securities Company Limited (SCBS) - at 'AA-(tha)'. The Outlooks are Stable.

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
IDRs, NATIONAL RATINGS, and SENIOR DEBT
The IDRs, National Ratings, and Senior Debt of BBL, KBank, and SCB are driven by their Viability Ratings (VR). The IDRs, National Ratings, and senior debt of KTB are driven by the Support Rating Floor.

The National Ratings of KS and SCBS are driven by their status as strategically important subsidiaries of their respective parents KBank and SCB. This is due to their key roles in their parent banks' universal banking strategy, their status as wholly owned subsidiaries, and high levels of management and operational integration.

VR
The VRs of BBL, KBank, SCB and KTB reflect their strong domestic franchises and large client bases. Their standalone financial profiles have been sound but increasingly pressured against the backdrop of a persistently negative operating environment.

BBL's VR incorporates its sound asset quality, underpinned by its conservative risk appetite, a delinquency rate lower than its peers, and a stronger buffer (in terms of loan-loss reserve). The ratings also reflect BBL's healthy capital position, with ratios that are among the highest in the Thai banking sector. Fitch believes that BBL could maintain its above-average capitalisation, backed by modest asset growth and profit accumulation, despite the weaker operating environment. BBL's liquidity risks are mitigated by its strong deposit franchise and large holdings of high-quality liquid assets.

KBank's VR reflects Fitch's view that its overall financial strength compares favourably with similarly rated or higher-rated peers, particularly on profitability, asset-quality measures and capital. The rating also take into account Fitch's expectation that KBank should be able to weather an increasingly challenging environment over the next one to two years. This is due to its reasonable buffers in terms of capital, reserve coverage and earnings.

SCB's VR is supported by its extensive universal banking franchise, with a particular strength in retail banking. SCB's higher risk appetite than other large banks leads to some potential volatility in asset quality across the business cycle, but consistent profit generation means that its financial performance is generally strong. The economic environment remains muted and will continue to constrain SCB's performance and asset quality, but is not likely to significantly impair its acceptable capital levels.

KTB's VR is rated two notches below the other large banks, primarily to reflect its weaker capitalisation and asset quality, as well as lower profitability compared with the other banks. Key financial ratios such as the impaired-loan ratio, reserve coverage, and profitability deteriorated in 2015, and remained generally below the peer average. KTB also demonstrates greater vulnerability to the economic slowdown compared with its large domestic peers, as evident from asset-quality deterioration over the past 12 months, which is likely to continue. However, most of the key ratios remain acceptable and in line with - or better than - overall banking sector averages.

SUPPORT RATING AND SUPPORT RATING FLOOR (SRF)
Fitch deems that all four banks are systemically important to the Thai financial system. Each has a market share in commercial bank deposits in excess of 14%. KTB's SRF of 'BBB' is one notch higher than the other three banks, as it is not only systemically important but also strategically important to the government. KTB is the only state-owned commercial bank, with close operational and branding links to Thailand's Ministry of Finance, and it has a quasi-policy role supporting government initiatives.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
All four banks have issued legacy Tier 2 notes (non-Basel 3 compliant) that are rated one notch down from their Long-Term IDRs or National Long-Term Ratings. This reflects the subordination in the capital structure relative to senior unsecured debt, and is in line with Fitch's approach to rating such instruments.

KBank's Basel 3 Tier 2 subordinated THB notes are rated one notch below the National Long-Term Rating, to reflect their partial write-down feature and higher loss-severity risk relative to senior unsecured instruments arising from their subordinated status.

KTB's US dollar-denominated Basel 3 Tier 2 subordinated debt is rated one notch below the IDR. The use of the support-driven IDR as the anchor rather than the VR reflects Fitch's view that government support would flow to KTB to prevent non-viability. The one-notch differential reflects their subordination status, the presence of partial rather than full write-down feature, as well as the lack of going-concern loss-absorption features.

KTB's international hybrid Tier 1 rating of 'B' is rated five notches below the VR, reflecting going-concern risks of this instrument that include a noncumulative coupon deferral feature that could be triggered upon the bank posting a loss. KTB's national hybrid Tier 1 rating also reflects this implied notching approach from the VR.

RATING SENSITIVITIES
IDRs, NATIONAL RATINGS, and SENIOR DEBT
The IDRs, National Ratings, and senior debt of BBL, KBank, and SCB would be affected by any changes in their respective standalone profiles, as indicated by the VR, including as a result of negative sovereign rating action (see VR section below). The National Ratings of the three banks could be upgraded if the banks can show that they can withstand the current weak operating environment while continuing to strengthen their key capital and asset-quality buffers.

The IDR, National Ratings, and senior debt of KTB would be affected by any changes in its Support Rating Floor, which in turn reflects the sovereign's capacity and propensity to support on a timely basis.

The National Ratings of KS and SCBS would be similarly affected by any changes in their parent's National Ratings. They could also be affected by any perceived changes in the propensity of KBank or SCB to support their respective subsidiaries - for example, if there were a large reduction in shareholding or a reversal of marketing and management linkages. However, Fitch does not expect any such changes in the medium term.

VR
There is unlikely to be upside to the VRs for BBL, KBank, and SCB, as the ratings are at the same level as the sovereign's Long-Term Foreign Currency IDR (currently BBB+/Stable) and the banks have a substantial exposure to sovereign bonds. On the other hand, a downgrade of the sovereign's Long-Term Foreign Currency IDR could result in negative ratings action for the VRs of BBL, KBank and SCB.

KTB's VR could be upgraded if it can show sustained improvement in key financial ratios (particularly in asset quality and capitalisation) and reduce the current gap with its three peers. However, this would likely be difficult to achieve in the short term, given the weak operating environment. Furthermore, although KTB may improve its profile in a more positive economic environment, its tendency to fulfil policy-related activities is most likely to become binding upon its financial profile during times of greater economic challenges.

For all four banks, there could be a negative impact on the VR by a sharp slippage in risk appetite discipline and sustained weakness in asset quality, which leads to - or increases the risk of - significantly lower capitalisation buffers.

SUPPORT RATING AND SUPPORT RATING FLOOR
Any change in the ability of the authorities to provide support - such as through a downgrade of the sovereign Long-Term Foreign Currency IDR - would most likely lead to a similar change in the SRF of KTB, and would also lead to a re-assessment of the SRFs of BBL, KBank, and SCB.

Any change in the propensity of the state to provide support to systemically important banks would also lead to a change in the SRFs of all four banks. For example, this might be evident from legislation mandating new controls on the state's powers to provide equity to banks. However, Fitch does not expect any such changes in the medium term.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The subordinated and hybrid debts of all four banks would be affected by any changes in the anchor ratings of the respective instruments. The ratings on the hybrid Tier 1 notes (both international and national) would also be re-assessed in the event the bank posts a loss.

The rating actions are as follows:

BBL
Long-Term Foreign-Currency IDR affirmed at 'BBB+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb+'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB-'
National Long-Term Rating affirmed at 'AA(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(tha)'
Senior unsecured USD3bn GMTN programme affirmed at 'BBB+'
Long-term foreign-currency senior unsecured notes affirmed at 'BBB+'
Long-term foreign-currency subordinated debt affirmed at 'BBB'
National long-term subordinated debt affirmed at 'AA-(tha)'

KBank
Long-Term Foreign-Currency IDR affirmed at 'BBB+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb+'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB-'
National Long-Term Rating affirmed at 'AA(tha)'; Outlook Stable
National Short-Term Rating affirmed at 'F1+(tha)'
Senior unsecured USD2.5bn EMTN programme affirmed at 'BBB+'
Long-term foreign-currency senior unsecured debt affirmed at 'BBB+'
National long-term subordinated debt rating affirmed at 'AA-(tha)'

SCB
Long-Term Foreign-Currency IDR affirmed at 'BBB+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb+'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB-'
National long-term rating affirmed at 'AA(tha)'; Outlook Stable
National short-term rating affirmed at 'F1+(tha)'
Senior unsecured USD3.5bn MTN programme affirmed at 'BBB+'
Long-term foreign-currency senior unsecured debt affirmed at 'BBB+'
National rating on short-term senior unsecured debt programme affirmed at 'F1+(tha)'
National rating on long-term subordinated debt affirmed at 'AA-(tha)'

KTB
Long-Term Foreign-Currency IDR affirmed at 'BBB'; Stable Outlook
Short-Term Foreign-Currency IDR affirmed at 'F3'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB'
National Long-Term Rating affirmed at 'AA+(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'
Senior unsecured USD2.5bn EMTN programme affirmed at 'BBB'
Senior unsecured notes affirmed at 'BBB'
Subordinated US dollar debentures affirmed at 'BBB-'
International rating for hybrid Tier 1 securities affirmed at 'B'
National rating on THB20bn short-term debenture programme affirmed at 'F1+(tha)'
National subordinated debt rating affirmed at 'AA(tha)'
National rating hybrid Tier 1 securities affirmed at 'BBB(tha)'

KS
National Long-Term Rating affirmed at 'AA-(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'

SCBS
National Long-Term Rating affirmed at 'AA-(tha)'; Stable Outlook
National Short-Term Rating affirmed at 'F1+(tha)'