Moody's maintains KBank's ratings

  KBank's standalone D+ bank financial strength rating (BFSR) maps to Baa3 on the long-term scale; Baa1/Prime-2 long-term foreign currency deposit; and A3/Prime-2 foreign currency senior debt. In addition, Moody's has affirmed the foreign currency subordinated debt of Baa1.

 Moody's said in a statement that KBank's ratings remain constrained by (i) weaker Tier I capital ratios when compared to its global and local peers; and (ii) relatively high  single-borrower concentrations and high -- but decreasing -- efficiency ratios, again when compared to its peers.

 Moreover, KBank has a lower level of capitalisation when compared to its local competitors like Bangkok Bank and Siam Commercial Bank. Its Tier I stood at 9.2 per cent in the first half of 2011.

 "As a result of its relatively weaker capital cushion, KBank's solvency is less resilient than these higher rated peers to stressed conditions," Moody's said.

 The bank's loan portfolio has a high degree of single-borrower concentration, relative to core capital and earnings. This is on par with its large Thai peers, but considered high on a global context. Such concentration exposes earnings to volatility, and may affect asset quality in a downturn. Its top 20 loan exposures range between 100 per cent and 200 per cent of its Tier I capital.

 On the other hand, Moody's observes that the ratings are underpinned by (i) the size of its franchise as the third largest in Thailand, with a 15 per cent share of assets, and 16 per cent of loans and deposits; (ii) the bank's

stable funding and liquidity profile; and (iii) its steady overall fundamentals, which remain established within its "D+" regional peer group.

 On another positive note, KBank's asset quality has continued to improve over recent years, better than most of its local peers, though still weak when compared to global peers. Non-performing loans (NPLs, defined as loans 90+ days overdue) declined to Bt32.3 billion (2.8 per cent of gross loans) at end-June 2011 from Bt37.3 billion (4 per cent) at end-2009, due to active debt management and minimal formation of new NPLs. Its loan-loss reserve coverage ratio increased to 120 per cent of gross loans in the first half 2011 from 110 per cent at end-2010.

 Pre-provision profits were 3.5 per cent of average risk-weighted assets for 2010.

 As with most other Thai banks, KBank's loan-to-deposit ratio is on the high side, relative to other Asian banks, as evidenced by a 96 per cent loan-to-deposit ratio at the end of first half of 2011 (98 per cent at end-2010). But, its sizable and stable core deposit base accounted for nearly 89 per cent of its funding at end- 2010, with a profile mainly in local currency.

 An upgrade of its stand-alone rating would require that (i) its financial  performance in the next 18 months is consistent and solid; (ii) its Tier I ratio rises above 11 per cent; and/or (iii) its cost efficiency ratio falls below 48 per cent (excluding insurance income and expense). Any upgrade of the deposit and debt ratings would require an upgrading of Thai's sovereign ratings.

 On the other hand, the stable outlook on the ratings could change to negative if the (i) difficult operating environment in Thailand worsens and KBank's asset quality deteriorates in coming months; (ii) profitability declines, such that pre-provision profits - as a percentage of risk-weighted assets - fall below 2.5 per cent; (iii) the loan-to-deposit rises above 100 per cent; and/or (iv) the bank's capital adequacy declines significantly, such that its Tier I ratio falls below 8 per cent.