Krung Thai Bank rating upgraded to ’BBB/A-2’ by S&P Global Ratings

Investing.com -- S&P Global Ratings has raised the long-term issuer credit rating of Krung Thai Bank Public Co. Ltd. (KTB) to ’BBB’ from ’BBB-’ and the short-term rating to ’A-2’ from ’A-3’. The rating agency made this decision based on the bank’s strengthened business position and improved profitability, supported by prudent management. The outlook for the long-term rating is stable.

KTB, one of Thailand’s largest banks, has seen its business position strengthen, backed by its dominant franchise in the country. It holds a market share of about 18% for loans and 16% for deposits. In 2024, KTB’s loan book grew 4.7% due to credit demand from the government and state-owned entities, contrasting with a 0.7% contraction in loans by the broader banking sector.

The bank’s net interest margin (NIM) improved significantly to 3.29% in 2024 from 2.6% in 2022, outpacing the sector average of 3%. This improvement was supported by higher rates, low funding costs, and decreasing provisioning costs. Despite expected rate cuts in 2025 and portfolio rebalancing, KTB’s profitability is expected to remain comparable with that of large Thai banks.

The Bank of Thailand cut policy rates by 25 basis points in 2024 and another 25 basis points in February 2025, with another cut of 25 basis points expected in 2025. Despite high credit costs, KTB’s low cost of funding, supported by a high share of low-cost CASA deposits, at 77% of deposits as of December 2024, should continue to support profitability.

KTB’s strategy to increase private sector lending remains unchanged, but the bank is currently focusing on government and SOE lending due to challenging macroeconomic conditions. Once private sector lending picks up, NIM and return on average assets should slightly increase. S&P Global Ratings forecasts a return on average assets of 100 bps-120 bps for the bank over the next two years.

KTB’s improved profitability is also attributed to its focus on risk management. The bank has improved the quality of new retail loans in recent years, and the share of nonperforming loans (NPLs) in total loans has come down from elevated levels in 2015. This reflects better underwriting standards. KTB’s asset quality ratios are thus converging with those of the industry.

As of December 31, 2024, KTB reported a provision coverage ratio of 188.6%, surpassing regional peers and the Thai industry average of 177.1%. Its capital adequacy ratio of 21.4% remains well above the regulatory minimum and the industry average of 20.4%. S&P Global Ratings estimates KTB’s capitalization at 8.4%-8.9% in 2025-2027, supported by healthy profit generation and retention.

S&P Global Ratings anticipates a high likelihood of government support for KTB, if needed, reflecting the bank’s high systemic importance and the government’s supportive stance toward the domestic banking sector. KTB, the only commercial bank in Thailand with majority government ownership, accounts for about 16% of deposits in Thailand as of December 31, 2024.

Despite KTB’s improved position, Thailand’s uneven economic recovery remains a risk. KTB has lower loans under relief than its Thai peers and a higher proportion of loans to customers on the government payroll in its retail portfolio. However, any failure of the Thai economy to recover as expected could jeopardize the asset quality of Thai banks in general and the improvements in KTB’s performance.

The stable rating outlook on KTB reflects S&P Global Ratings’ view that the bank will maintain its strong market position, deposit franchise, and high systemic importance in the Thai banking industry. KTB’s improved risk management will likely help the bank contain asset quality risks.

The ratings already factor in some deterioration in KTB’s asset quality over the next 12-24 months, in line with the agency’s expectation for the industry. They expect NPLs for the Thai banking system to rise gradually over the period. Credit costs for the sector should remain elevated for the next couple of years.

S&P Global Ratings could lower KTB’s ratings if its asset quality deteriorates substantially, or if economic conditions for banks operating in Thailand deteriorate significantly beyond current expectations. Conversely, they could upgrade KTB if credit risks for Thai banks reduce materially, which would depend on a more broad-based and entrenched economic recovery in Thailand, especially in the tourism and small and midsize enterprise sectors.

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