KBank's Indonesia Expansion Poses Additional Risk But no Immediate Impact on Ratings

Fitch believes the acquisition of additional shares in Maspion is unlikely to have an impact on KBank's standalone strength (as reflected by its Viability Rating, or VR, of 'bbb'), as Maspion's total assets (of about USD998 million) equate to only around 0.8% of KBank's assets or about 1.3% of risk-weighted assets. KBank's common equity Tier 1 (CET1) ratio was 15.3% as of March-2022, which provides some buffer for its short-term expansion strategy.

KBank's Long-Term Issuer Default Rating (IDR) is underpinned by both its VR and its Government Support Rating of 'bbb'. Hence any downside to the VR alone would not affect the Long-Term IDR.

Thai banks face strategic challenges in achieving growth, amidst a weak domestic economy and a low-interest-rate environment (please see our Fitch Wire "Thai Deals Highlight Asian Banks' Rising Risk Appetite", dated 29 January 2020). International expansion is nonetheless growing despite a limited record.

The most prominent example is Bangkok Bank Public Company Limited's (BBL; BBB/Stable) acquisition of Indonesia's PT Bank Permata in May 2020 for approximately USD2.3 billion. Bank of Ayudhya Public Company Limited (BBB+/Stable) has also invested in financial institutions in the Philippines and Vietnam in the past two years. Substantial regional investments in markets with weaker operating environment may ultimately reflect a greater appetite by Thai banks as well as weighing down their operating environment scores.

Fitch believes that KBank's overseas loans will remain modest compared with BBL, which had overseas exposures of 25%. Fitch will continue to assess KBank's risk profile, asset quality and operating environment for any potential impact on its VR as the bank's loan portfolio shifts, although this expansion may also lead potentially to benefits in franchise and earnings.

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