Moody’s Investors Service, which has rated it at ‘Baa2 stable, ba2′, said the rights will increase the bank’s common equity Tier 1 ratio (CET1) to 10.7 per cent from 9.1 per cent, which was closer to the Thai banking sector’s average CET1 ratio of 13.1 per cent.
“The capital raised is credit positive for CIMB Thai because it will strengthen its loss-absorption buffer to withstand slower economic growth, rising asset quality pressures and elevated credit costs affecting Thai banks,” the rating agency said in a statement here Monday.
Compared with other Thai banks, Moody’s Rating said CIMB Thai has weaker loss-absorption capacity due 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 30, 2015 from 3.3 per cent at year-end 2014, exceeding the Thai banking system’s average of 2.4 per cent at June 30, 2015, it said.
It said 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.
Moody’s said the bank’s credit costs rose significantly to 83 per cent of its pre-provision profits as of June 30 from 63 per cent at year-end 2014, severely depleting its ability to generate capital internally.
The fresh capital will support the bank’s business growth and boost its loss absorption capacity from further asset quality deterioration, it said.
“We expect Thailand’s 2015 real gross domestic product to grow below trend at three per cent, driven by diminished agricultural output because of drought, the continued drag of weakening external demand and poor business sentiment and consumer confidence,” it said.
As a consequence of the weak macro conditions, Moody’s expected Thai banks will continue to face persistent challenges in asset quality, with elevated credit costs over the next 12-18 months.
The rights issue will take place in late October.
“We expect that the capital injection from Malaysia’s CIMB Bank Bhd (A3/A3 positive, baa1), which owns 93.7 per cent of CIMB Thai, will increase the regulatory deduction from CIMB Bank Bhd’s capital, lowering the Malaysian bank’s entity-level CET1 ratio by about 10 basis points, although its consolidated capital ratio would not be affected,” it said. – Bernama