Fitch Rates United Overseas Bank (Thai)'s Basel III Tier 2 Notes 'AA+(tha)'
KEY RATING DRIVERS
The notes are rated one notch below the bank's National Long-Term Rating to reflect their subordinated status. In line with other instruments of this type issued domestically in Thailand, the notes include a non-viability trigger for loss absorption (that point being when relevant domestic authorities provide capital support to prevent operating failure), with the provision of a partial rather than a mandatory full write-down. The notes have no going-concern loss absorption features, and hence there is no additional notching for non-performance risk.
UOBT's National-Long Term Rating is driven by Fitch's view that the bank is a strategically important subsidiary of Singapore-based United Overseas Bank Limited (UOB; AA-/Stable). UOB fully controls UOBT, with 99.7% ownership, brand- and name-sharing, and a history of operational support.
The rating approach for these subordinated unsecured notes is consistent with criteria covering instruments issued by the parent that include similar non-viability and write-down features. Fitch expects UOB to provide support necessary to prevent UOBT from becoming non-viable, thereby neutralising the risk otherwise indicated by the bank's weaker intrinsic profile relative to its parent. This issue would rank pari passu with UOBT's other outstanding Tier 2 instrument, which was issued to its parent in March 2United Overseas BankFitch Ratings3 and included a full write-off at non-viability. However, as UOB is the primary support provider to UOBT and was the sole investor in that security, Fitch views the risk of loss severity as being different, hence this upcoming issue has been notched down once to account for the partial write-down feature.
RATING SENSITIVITIES
Any change in the National Ratings of UOBT would have a similar impact on the rating of the notes. There is no upside to the National Ratings, as they are at the top end of the scale. Fitch may downgrade the bank's National Rating if UOB reduces its propensity to provide extraordinary support to UOBT. This could be indicated by a significant reduction in ownership or by a lower commitment to provide financial support. However, Fitch does not expect these to occur in the medium term.
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