Fitch Downgrades CIMBS to 'AA-(tha)', on RWN; Affirms 3 Thai Subsidiaries of Foreign Banks

           Fitch Ratings has downgraded CIMB Securities (Thailand) Co., Ltd.'s (CIMBS) National Long-Term Rating to 'AA-(tha)' from 'AA(tha)', and placed all its ratings on Rating Watch Negative (RWN). 
          At the same time, the agency has affirmed the ratings on the following Thai subsidiaries of foreign financial institutions:
          - United Overseas Bank (Thai) Public Company Limited (UOBT), 
          - CIMB Thai Bank Public Company Limited (CIMBT), and
          - Maybank Kim Eng Securities (Thailand) Public Company Limited (MBKET).
          Fitch has also affirmed the rating on the guaranteed bond issued by CIMB Thai Auto Co., Ltd. (CIMBT Auto, formerly known as Center Auto Lease Company Limited). 

          A full list of rating actions is included at the end of this commentary.
          KEY RATING DRIVERS 
          IDRS, NATIONAL RATINGS AND SENIOR DEBT
          Fitch rates CIMBS based on institutional support from Malaysia's CIMB Group. The downgrade reflects the agency's view that there has been a decline in the CIMB Group's propensity to support CIMBS, as the group has clear plans to reduce its stake in its securities businesses. CIMB Group has announced that it will sell a 5United Overseas Bank% stake in CIMB Securities International Pte Ltd. (CSI), CIMBS's direct parent, to China Galaxy International Holdings (CGIH). Fitch believes these plans will have a negative impact on the role and integration of CIMBS within the CIMB Group over the medium term. 
          Fitch has also placed CIMBS on Rating Watch Negative because there may be further reduction in the CIMB Group's propensity to support CIMBS after the transaction is finalised. The agency believes CIMB Group is likely to reduce its support, as the sale agreement provides for the sale of a further CIMB Thai Bank5% stake to CGIH. 
          Fitch will also assess the level of institutional support that CIMBS may receive from its new shareholder CGIH. However, Fitch believes that this level of support, if any, is unlikely to be greater than that from CIMB Group previously. One possible outcome of the review is that under the new joint-venture shareholding structure, there is no clear support propensity from either of the parents and that CIMBS should be assessed on a standalone basis. Should this happen, CIMBS's National Long-Term Rating could fall further by three notches or more.
          Institutional support also drives the IDRs and National Ratings of UOBT, and the National Ratings of CIMBT and MBKET. Fitch believes these three entities would receive extraordinary support from their parents, namely United Overseas Bank Limited (UOB; AA-/Stable), CIMB Bank Berhad (CIMB) and Malayan Banking Berhad (Maybank; A-/Stable). All three parents have integrated the Thai firms closely with the groups, and hold majority stakes in and exercise management control of the Thai firms. The parents allow the Thai entities to share their brands, and remain supportive of the Thai subsidiaries financially and operationally. 
          UOBT's Foreign-Currency Issuer Default Rating of 'A-' is capped by Thailand's Country Ceiling of 'A-'.
Fitch rates the Thai-baht denominated senior debt of UOBT and CIMBT at the same level as the entities' National Ratings, reflecting the unsecured and unsubordinated nature of these instruments, which rank pari passu with the banks' other senior unsecured obligations.
          CIMBT's unconditional and irrevocable guarantee for CIMBT Auto's bond underpins the instrument's 'AA(tha)' rating. CIMBT directly owns 99.99% of CIMBT Auto. 

          VIABILITY RATING (VR)
          UOBT's Viability Rating reflects its relatively small franchise in the Thai market, and an earnings capacity that has underperformed that of larger banks. UOBT's VR also reflects its satisfactory capitalisation for its rating level, its consistent performance, as well as ordinary support from UOB (for example, in terms of management and marketing). 

          SUBORDINATED DEBT
          Fitch rates UOBT's Basel III Tier CIMB Thai Bank subordinated debt one notch below the bank's National Long-Term Rating. The features of the notes are in line with other instruments of this type issued locally in Thailand - the notes have no going-concern loss absorption features, and there is no provision for a mandatory full write-down. 
          Fitch has notched MBKET's subordinated debt one level below the anchor rating of 'AA+(tha)', MBKET's National Long-Term Rating. Subordinated noteholders rank after senior creditors in the priority of claims. The notching reflects the notes' lack of going-concern loss-absorption and their higher loss-severity risks compared with senior unsecured instruments due to the notes' subordination to the latter.

          RATING SENSITIVITIES
          IDRS, NATIONAL RATINGS AND SENIOR DEBT
          Fitch expects to resolve the RWN on CIMBS within the next six months once the agency gets clarity on the level of institutional support for CIMBS. CIMBS's ratings are sensitive to changes in CIMB Group's credit profile and propensity to extend support to CIMBS. The ratings may also be impacted by the agency's assessment of CGIH's propensity to extend extraordinary support to CIMBS. 
          Any changes in UOB's Long-Term Foreign-Currency IDR would be unlikely to affect UOBT's IDR unless the parent was downgraded by more than a category, as it is currently capped by Thailand's Country Ceiling of 'A-'. A change in Thailand's Country Ceiling is likely to lead to similar rating action on UOBT's Long-Term Foreign-Currency IDR. UOBT's National Ratings and Support Rating are already the highest on each scale, so no upgrades are possible.
          Fitch might also downgrade the National Long-Term Ratings of CIMBT and MBKET if their parents' credit profiles were to deteriorate or if the parents were to reduce their propensity to extend extraordinary support. This could happen if the parents materially reduced their shareholding or withheld commitments to supporting their Thai subsidiaries financially. The agency deems these scenarios improbable. 
          The senior debt ratings of UOBT and CIMBT are sensitive to changes in their National Ratings.
          The rating of CIMBT Auto's guaranteed bond would be directly affected by changes in CIMBT's National Long-Term Rating.

          VIABILITY RATING
          UOBT's Viability Rating could see upside if the bank shows that it can sustain its improved profitability core metrics, while maintaining a consistent risk appetite and sound capital buffers. One other key factor would be UOBT's ability to maintain its improved scale compared to the small-sized banks. Conversely, the agency may downgrade the bank's Viability Rating if the bank's profitability, asset quality, or capitalisation were to deteriorate very sharply. 

          SUBORDINATED UNSECURED DEBT
          Changes in UOBT's National Long-Term Rating would similarly affect the rating of its subordinated debt.
          Changes in MBKET's National Long-Term Rating would have a similar effect on the rating of the subordinated notes. 
          The rating actions are as follows: 

          UOBT:
          - Long-Term Foreign Currency IDR affirmed at 'A-'; Outlook Stable
          - Short-Term Foreign Currency IDR affirmed at 'FCIMB Thai Bank'
          - Viability Rating affirmed at 'bb+'
          - Support Rating affirmed at 'Maybank Kim Eng'
          - National Long-Term Rating affirmed at 'AAA(tha)'; Outlook Stable
          - National Short-Term Rating affirmed at 'FMaybank Kim Eng+(tha)'
          - National Long-Term Rating on senior unsecured debt affirmed at 'AAA(tha)'
          - Basel III Tier CIMB Thai Bank subordinated debt affirmed at 'AA+(tha)'

          CIMBT:
          - National Long-Term Rating affirmed at 'AA(tha)'; Outlook Stable
          - National Short-Term Rating affirmed at 'FMaybank Kim Eng+(tha)'
          - National Short-Term Rating on short-term debenture programme affirmed at 'FMaybank Kim Eng+(tha)'

          CIMBS:
          - National Long-Term Rating downgraded to 'AA-(tha)' from 'AA(tha)'; placed on RWN
          - National Short-Term Rating of 'FMaybank Kim Eng+(tha)' placed on RWN

          MBKET:
          - National Long-Term Rating affirmed at 'AA+(tha)'; Outlook Stable
          - National Short-Term Rating affirmed at 'FMaybank Kim Eng+(tha)'
          - National Long-Term Rating on subordinated debt affirmed at 'AA(tha)' 

          CIMBT Auto:
          - National Long-Term Rating on guaranteed bond affirmed at 'AA(tha)'; Outlook Stable