Moody's Investors Service has affirmed the foreign currency deposit rating of TMB Bank Plc at Baa2 and affirmed the baseline credit assessment (BCA) and adjusted BCA of TMB at ba1.
The outlook on all of TMB's ratings continues to be positive.
In February, TMB, ING, Thanachart Capital Plc (TCAP), Thanachart Bank Plc (TBank) and Scotiabank entered a non-binding memorandum of understanding for a merger of TMB and TBank.
After the announcement, TMB's ratings remain positive because Moody's expects the bank's asset quality and profitability to improve, while maintaining sufficient loss-absorbing buffers.
Moody's also expects the merger to transform the two banks into the sixth-largest bank in Thailand, with a deposit market share of 7% as of Dec 31, 2018. The merged company can improve market position by capitalising on both banks' strengths: TMB's strong retail deposit base and TBank's leading position in auto lending.
Additionally, Moody's expects the stand-alone financial strength of the combined banks to improve, putting upward pressure on the ratings.
But the proposed transaction structure is complex; a key factor will be the impact on the combined capital position and TMB's ability to raise equity to fund the transaction.
Based on the announced plans, TMB plans to raise 40-45 billion baht in new equity from existing shareholders. Integration costs in the first few years of the merger will have a negative impact on profitability.
TMB will be the surviving entity and remain listed on the stock exchange.
According to the transaction structure, ING and TCAP will own a more than 20% stake in the combined bank, while the shareholding of Scotiabank will significantly decline. The Finance Ministry, which owns a 26% stake in TMB, will remain a shareholder.
The transaction for the merger will likely conclude by the end of 2019.
Moody's could upgrade TMB's ratings if the stand-alone financial performance of TMB remains stable and the transaction does not result in a material negative impact to its financial performance, particularly the capital position. The rating could also be improved if the funding and liquidity profiles of the two banks remain stable.
Moody's could change TMB's ratings outlook to negative or downgrade the ratings if the stand-alone credit profile of TMB deteriorates.
