Fitch Ratings has assigned Krungthai Bank (KTB) a final rating of BBB- for its US$700-million, 10.5-year, Basel III-compliant Tier-2 subordinated notes.
The notes, part of the bank's 2.5-billion-euro (110-billion-baht) medium-term note scheme, are issued out of KTB's Cayman Islands branch.
The rating action follows the completion of the subordinated notes issue, as well as the receipt of final documents that conform to information previously received.
The final rating matches the expected rating assigned on June 13. The notes are the first publicly transacted, US-dollar-denominated, Basel III-compliant Tier-2 subordinated notes from Thailand.
The rating is one notch below the anchor rating, which is KTB's issuer default rating (IDR).
While Fitch's typical anchor rating for Basel III Tier-2 securities is the issuer's viability rating, which does not factor in any extraordinary government support, the IDR could be used if, in Fitch's view, there is an extreme likelihood of state action to prevent non-viability.
In that case, Fitch expects there would be pre-emptive equity injections by the Thai government to maintain KTB as a going concern without triggering non-viability, and KTB's IDR would be the appropriate anchor.
KTB is 55% held by the state Financial Institutions Development Fund. It is the only state-owned commercial bank, with no prospects of any significant change in the shareholding structure.
KTB has close operational links with the Finance Ministry, acting as the main payment and cash management provider for the state.
The bank has previously played a quasi-policy role, and while KTB has become increasingly commercial in its focus, the bank expects to be called upon to perform policy functions in the future if necessary.
The Tier-2 notes are rated one notch below the anchor rating to reflect their higher loss-severity risk relative to senior unsecured instruments, arising from their subordinated status.
Key terms of the notes include a non-viability trigger (defined as emergency capital assistance from the central bank or other empowered government agency), with a partial rather than mandatory full write-down feature.
Fitch said any change in KTB's IDR would affect the rating of these notes.