No effect for now on BAY ratings from GE Capital divestment, Fitch says
Fitch Ratings says Bank of Ayudhya's ratings are not immediately affected by major shareholder GE Capital International Holdings Corporation's divestment of a 7.6-per-cent stake in the bank to institutional investors.
This is because the ratings are driven by the bank’s viability rating, which is largely Fitch’s assessment of the standalone credit fundamentals without factoring in any extraordinary support from GECIH.
The transaction has reduced GECIH’s stake in BAY to 25 per cent, which is about the same level as the Ratanarak Group, another major shareholder.
According to Bank of Ayudhya (BAY), there is no change in executive management and board members as a result of this transaction.
GECIH has said it will continue to review strategic options for its remaining interest in BAY. Any further divestment by GECIH or the Ratanarak Group leading to the entry of a new major shareholder may cause Fitch to review BAY’s ratings.
GECIH’s investment in BAY since 2007 has been positive for the bank’s standalone credit profile by way of capital injection and operational support, which Fitch views as ordinary support under BAY’s five-year partnership with GECIH.
Supported by GECIH’s experience in consumer finance, BAY has built up its retail lending franchise via organic growth and several strategic acquisitions (including GE Capital Auto Lease, AIG Retail Bank, AIG Card, GE Money Thailand and HSBC’s Thailand retail banking business) over the past four years. The bank aims to increase its retail exposure to about 50 per cent of its total portfolio from the current 48 per cent.
Fitch says positive rating action may result from significant improvement in BAY’s deposit franchise that is comparable to its major domestic peers, in terms of retail deposits as a share of total funding. Maintaining its strong capital position and sustainable profitability may also benefit the ratings.
Any sharp increase in liquidity risk, including heavier reliance on wholesale funding, risk of significant deterioration in asset quality due to aggressive asset growth, or material weakening of capital position may lead to negative rating action, it says.
BAY was established in 1945 and is Thailand’s fifth-largest commercial bank by consolidated assets, with about an 8-per-cent share each in loans and deposits at the end of June. Its key subsidiaries are involved in auto finance, credit cards, consumer finance, securities and fund management.
Given BAY’s share of deposits and loans, there is a moderate probability of government support in case of need, Fitch notes.
