Thai bank deal marks step up in MUFG's growth abroad: Fitch

 

 

 

“The transaction is in line with our expectation for MUFG's strategy to expand in the Asian retail segment. We also consider it the best positioned of the three mega banks for further acquisitions, as its enhanced capital gives it more options for overseas growth,” Fitch said.

BAY is Thailand's fifth-largest commercial bank by consolidated assets, with around 8 per cent market share.

The rating agency said that if successful, this would be the first acquisition of a majority stake in Asia by a Japanese mega bank. 

A controlling holding would give MUFG a tighter grip on management, controls and reporting and the ability to merge the retail- and SME-focussed BAY with its own Thai branch, which concentrates on Japanese corporates, to generate synergies. MUFG's results would receive a boost from the consolidation of BAY's earnings over time, especially if profitability synergies materialise through the development of the retail and corporate franchises.

The transaction is ratings neutral for MUFG because the immediate impact on the consolidated financial position, including its effects on capital, are limited. The group's fully loaded Basel III common equity Tier 1 capital ratio of 11.1 per cent at end-March 2013 is expected to reduce by just 50-60 basis points as a result of the acquisition.

Quicker international expansion through an acquisition can raise both credit and operational risks, particularly if it brings exposures to unfamiliar customer segments and geographical markets. MUFG's ambitions to enter Thai consumer lending through the BAY deal highlight a growing tolerance for risks as it pursues its offshore strategy. 

BAY's 'BBB' rating could benefit from liquidity and capital support from a new owner if MUFG acquires a majority stake.