Right timing for CIMB Thai's rights issue
CIMB Thai Bank's rights issue is credit positive because it will strengthen its loss-absorption buffer to withstand slower economic growth, rising assetquality pressures and elevated credit costs affecting Thai banks, said Moody's Investors Service.
The bank plans to raise Bt3.7 billion through the rights issue.
The rights issue will increase the bank’s tier 1 capital ratio to 10.7 per cent from 9.1 per cent, which is closer to the Thai banking sector’s average ratio of 13.1 per cent.
According to Moody's. compared with other Thai banks, CIMB Thai has weaker loss-absorption capacity owing to its weaker capitalisation and poorer asset quality. CIMB Thai’s gross non-performing loans ratio deteriorated to 4.1 per cent as of June from 3.3 per cent at year-end 2014, exceeding the Thai banking system’s average of 2.4 per cent as of June.
Malaysia’s CIMB Bank owns 93.7 per cent of the Thai bank.
"Compared with its peers, CIMB Thai’s asset quality has deteriorated more significantly as a result of a few large corporate delinquencies in the first half of the year. Credit costs rose significantly to 83 per cent of the bank’s pre-provision profits as of June from 63 per cent at year-end 2014, severely depleting the bank’s ability to generate capital internally. The fresh capital will support the bank’s business growth and boost its lossabsorption capacity from further asset quality deterioration," Moody's said.
The rating agency also noted that Thailand's 2015 real gross domestic product should expand below 3 per cent due to drought-hit agricultural output, the continued drag of weakening external demand and poor business sentiment and consumer confidence. As a consequence of the weak macro conditions, Thai banks are expected to continue to face persistent challenges in asset quality, with elevated credit costs over the next 12-18 months.
