FRIDAY, March 29, 2024
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Bank merger could improve rating, but internal culture an issue: Fitch

Bank merger could improve rating, but internal culture an issue: Fitch

The merger of two Thai banks could improve their ratings, Fitch Ratings said on Monday, if the resulting entity can improve its domestic franchise and financial strength.

However, joining Thanachart Bank Public Co Ltd (TBANK; AA-(tha)/Stable) and TMB Bank Public Co Ltd (TMB; BBB-/bbb-/AA-(tha)/Stable) also risks downsides from the complexities and challenges of integrating their respective operations and cultures, Fitch added.

The two mid-sized banks announced on February 27 that they had signed a non-binding memorandum of understanding for a merger. 

The transaction is still in its early stages, with only limited information disclosed. Fitch expects to take rating actions if the merger plans are executed and when any changes in the credit profiles of the two banks become clearer.

Under the plan, TBANK would transfer its assets and liabilities to TMB at the estimated value of Bt130 billion-140 billion. About 70 per cent of the value would be financed by equity via TMB’s new share issuance, which would be allocated to existing shareholders of TBANK and TMB.

TBANK is the sixth-largest commercial bank by assets, and is Thailand's largest automobile hire-purchase lender. TMB is Thailand’s seventh-largest commercial bank, with a strong focus in transactional banking. 

After the merger, the combined bank should have a combined market share of 10-11 per cent for total assets and total deposits, which approaches the size of Thailand’s fifth-largest bank, the Bank of Ayudhya (A-/bbb/AAA(tha)/Stable). Moreover, the merger should lead to a more diversified loan portfolio due to the two banks’ different market strengths.

Another consideration for the merger discussions is the Ministry of Finance’s tax incentives announced last year aimed at boosting the size of domestic banks. 

The ministry is a 26-per-cent shareholder in TMB, and is likely to retain a significant stake in the merged entity.

The merger, if it proceeds, is not expected to be completed until near the end of 2019. The transaction is subject to further discussion and negotiation, including the ultimate shareholder structure of the merged entity, as well as several legal conditions, due diligence and approval from regulators and shareholders. 

As such, there is no certainty that the merger will go through as planned, Fitch noted in a release.

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