TMB ratings upgraded on improved risk management
Standard & Poor's Ratings Services has raised its long-term issuer credit rating on TMB Bank to "BBB-" from "BB+". The outlook is "stable".
It also raised the short-term issuer credit ratings on the bank to “A-3” from “B” and raised the long-term Asean regional scale rating to “axA-” from “axBBB+” and affirmed the “axA-2” short-term Awean regional scale rating on the bank.
“We upgraded TMB because we expect the bank to maintain the sustained improvement in its risk management practices,” said Standard & Poor’s credit analyst Cheul Soo Cho.
It revised its assessment of TMB’s risk position to “adequate” from “moderate”, as its criteria define these terms, and therefore raised the bank’s standalone credit profile to “bb+” from “bb”. The rating also incorporates S&P’s expectation of extraordinary support from the government to TMB, given the bank’s systemic importance.
The rating agency believes TMB’s restructuring of its operations since its collaboration with ING Bank in April 2008 has improved its financial profile. TMB has strengthened risk management, rationalised staff strength, transformed branches, sold non-performing loans (NPLs), and reduced the proportion of term deposits to total deposits. The bank is once again focusing on growth and plans to increase its market share of loans as well as deposits.
In the rating agency’s view, TMB’s asset quality has improved substantially over the past few years. The bank’s gross non-performing asset (NPA) ratio, including NPLs, restructured loans, and foreclosed assets, is now comparable with peers’. The gap between the bank’s NPL ratio and that of other large banks has also narrowed. TMB’s ratio of NPA to total loans was 6.7 per cent as of June 30, with an NPL ratio of about 4.8 per cent. The bank has tightened its underwriting standards over the past few years.
TMB’s capitalisation is moderate, in S&P’s opinion. The bank’s risk-adjusted capital ratio (pre-diversification) under S&P’s framework was 6.2 per cent on December 31, 2012. The agency expects this ratio to remain above 5 per cent for the next two years. TMB’s earnings profile has been improving because of better margins.
TMB’s business position is adequate and reflects the bank’s average market position, its strengthened management team, and its satisfactory business and geographic diversification, the agency said. Nevertheless, a change in TMB’s management team or ownership might lead to a change in the bank’s strategy and could affect its credit profile. The bank’s funding profile is average and characterised by majority deposit funding.
“The ‘stable’ outlook reflects our expectation that TMB will maintain its business profile and continue to increase its earnings,” Cho said.
