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December 13, 2007 |
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BANK OF AYUDHYA: Moody's Considers 'Baa3' Rating For Upgrade Moody's Investors Service has placed on review for possible upgrade the Bank of Ayudhya Public Co Ltd's ("BAY") Baa3 deposit and debt ratings and its D- bank financial strength rating. The following ratings have been placed on review for upgrade: * Bank financial strength rating of D- * Long-term foreign currency deposit rating of Baa3 * Short-term foreign currency deposit rating of Prime-3 * Senior unsecured foreign currency debt rating of Baa3 The rating action was based on BAY's track record of improving economic solvency, increasing earnings diversification, and strengthening risk management practices. "In addition, the increased investment stake by GE Capital International Holdings Corporation's ("GECIH") in BAY to 35%, should leverage the former management's strong relationship with BAY, product and risk assessment capabilities and lead to increasing profitability over time," says Karolyn Seet, Moody's Lead Analyst for the bank, adding, "BAY's capital structure has also been strengthened by the completion of GECIH's investment scheme to acquire 2 billion shares in BAY so that its Tier 1 ratio now stands at 15.6% as at the end of September 2007." However, Moody's also notes that BAY faces challenges including fierce competition in its retail business which could adversely affect its credit quality, especially as it has been over- aggressively expanding its loan book. Separately, the bank's impaired assets could also continue to limit earnings potential -- its balance sheet is still weak with a 17% non-performing loan ratio and a 50% loan loss reserve coverage. This is lower than the average 10% and 70% respectively for Moody's-rated commercial banks in Thailand. The ratings review will focus on management's objectives with respect to the expansion of BAY's hire purchase and retail businesses. In particular, the acquisition of GE Capital Auto Lease ("GECAL") from General Electric Capital Asia Investment is currently subject to the Bank of Thailand's approval. The deal is slated to significantly increase BAY's presence in the hire- purchase and retail markets. BAY's ability to diversify its lending to both corporations and individuals while strengthening asset quality and maintaining tier one capitalization will also be considered. |
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