Moody's: Stable view for GH Bank

Moody's: Stable view for GH Bank

GH Bank benefits from a high level of systemic support. PORNPROM SATRABHAYA
GH Bank benefits from a high level of systemic support. PORNPROM SATRABHAYA

Moody's Investors Service has affirmed GH Bank's foreign currency bank deposit rating of Baa1/P-2 and upgraded the state-owned bank's baseline credit assessment (BCA) to ba2 from ba3.

At the same time, Moody's affirmed GH Bank's local and foreign currency counterparty risk rating of Baa1/P-2 and counterparty risk assessment of Baa1(cr)/P-2(cr).

The outlook on GH Bank's ratings is stable.

GH Bank's foreign currency deposit rating is aligned with Thailand's sovereign rating (Baa1 stable), owing to the bank's important policy role.

The affirmation of GH Bank's ratings reflects Moody's assumption of a very high probability of systemic support for the bank in times of need. Such support acts as a buffer against the bank's weak but improving stand-alone credit assessment.

The support element applied in the bank's ratings is due to the Finance Ministry's 100% ownership in the bank and GH Bank's role as a policy bank, with a specific mandate to provide affordable housing finance to low- and middle-income borrowers.

Furthermore, given the Thai government's record of support for Thai banks, Moody's believes that GH Bank will receive government support in times of stress.

GH Bank's credit profile is underpinned by the Government Housing Bank Act, which requires the government to help maintain certain capital levels at the bank. Moody's believes that the government will take action to minimise or prevent the systemic consequences of a failure of a large deposit-taking institution such as GH Bank.

Because of these features, Moody's support assumption for GH Bank's ratings is government-backed and results in a four-notch uplift to the bank's deposit rating from its revised BCA of ba2.

The affirmation of GH Bank's counterparty risk assessment of Baa1(cr)/P-2(cr) and local and foreign currency counterparty risk rating of Baa1/P-2 takes into account the bank's preliminary rating assessment of ba1, which is one notch above its revised adjusted BCA of ba2, and one notch of government support, in line with Moody's methodology.

The upgrade of GH Bank's BCA and adjusted BCA to ba2 from ba3 recognises the positive momentum and improvements in the bank's credit profile in recent years, supported by improving capitalisation levels and loan-loss reserves.

GH Bank's reported problem loan ratio has also steadily improved, mainly supported by non-performing loan (NPL) sales. In addition, the bank's profitability has continued to improve, largely driven by reducing credit costs.

On the other hand, the bank's weaknesses are its low levels of liquidity and Moody's expectation that GH Bank's NPL formation will remain under pressure through 2019 because of the sustained high levels of household debt in Thailand -- at 77% of GDP as of June 30 -- and the high debt service ratios of low- and middle-income borrowers who form the majority of GH Bank's borrower base.

In Moody's opinion, these two weaknesses will continue to exert pressure on the bank's BCA.

The upgrade of the bank's BCA and adjusted BCA also takes into account the improved Macro Profile for Thailand of Moderate+ from Moderate, with an improvement to Strong- from Moderate+ in the country's banking country risk score. This situation reflects the cyclical recovery in the Thai economy, driven by increasing exports, tourism and consumer demand.

Nevertheless, the high levels of leverage present in the corporate and household sectors will continue to pose risks to the banking sector's asset quality.

GH Bank's foreign currency deposit rating is aligned with Thailand's sovereign rating, owing to the bank's important policy role. GH Bank's rating will likely move in line with Thailand's sovereign rating.

Furthermore, Moody's could upgrade the bank's BCA and adjusted BCA if GH Bank's stand-alone creditworthiness improves, as demonstrated by a consistent improvement in asset quality and an improvement in core profitability, supported by stable capitalisation.

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