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Moody's downgrades three banks' subdebt ratings in Thailand on increased bail-in risk.

Summary: Siam Commercial Bank Public Co. (Hong Kong) (senior unsecured A3 stable)

Moody's Investors Service announced today

that it has downgraded the subordinated debt (subdebt) ratings of three

Thai banks following a review launched in on 3 June to re-assess the

probability of government support that was assumed for this debt class.

The banks' senior obligation ratings and their stand-alone baseline

credit assessments were not affected.

Moody's removed the two -notches of systemic support uplift previously

incorporated in the banks' subdebt ratings, concluding a review started

on 3 June 2013.

The three banks affected are Bangkok Bank Ltd. (B1 stable; C-/b2

stable), Siam Commercial Bank Public Company Ltd. (B1 stable; C-/b2

stable) and KASIKORNBANK Public company Ltd (B1 stable; C-/b2 stable).

A list of affected securities can be found at the end of this press

release.

RATINGS RATIONALE

"Our downgrade reflects the increasing international trend of imposing

losses on holders of subdebt securities (creditor "bail-in") as a

pre-condition for distress banks to receive government support. As a

consequence, Moody's no longer assumes that Thai government support would

be forthcoming for the holders of such securities", says Jean-Francois

Tremblay, an Associate Managing Director at Moody's.

"We recognize that Bank of Thailand has in the past stepped in to assist

ailing banks in a way that supported all creditors. However, the global

financial crisis has demonstrated that support can be provided

selectively, with the costs being shared with subordinated creditors of

a bank, without triggering any contagion, as it was previously feared."

Moody's analysis observes that Thailand has a modern and progressive

approach to bank regulation. There is no explicit legal power allowing

Thai regulators to selectively impose losses on subdebt holders outside

of a liquidation process, but the Financial Institution Business Act

provides for an ailing bank to be placed under control by the regulatory

authorities, with powers to wind it up and/or restructure the ailing

bank's operations.

"In our view, such recourse could be used to coerce subdebt holders into

a distressed exchange, if not for the outright imposition of losses on

them outside of liquidation", Tremblay concludes.

As a consequence, Moody's assumes that Thai government support would be

much less likely.

This rating action relates only to Moody's view on the potential for

systemic support for the banks' junior securities. It does not reflect

any change in the banks' intrinsic credit quality or in the support

assumptions for issuer or senior debt ratings.

BACKGROUND

In recent years, losses have been imposed on the holders of junior

securities during the resolution of troubled banks in crisis-hit

countries. In the majority of cases, investors have suffered losses as a

result of distressed exchanges, which do not necessarily require a

developed resolution framework to be in place. Furthermore, experience

has shown that such a framework can be developed quickly at times of

stress.

As a consequence, Moody's approach globally is now to assume, as a

starting point, that no government support would be extended to the

subordinated debt holders of a distressed bank, except where particular

circumstances justify.

A detailed rationale explaining our decision can be found in our upcoming

special comment entitled "The World Has Changed: The Support Probability

for Bank Subordinated Debt in Asia-Pacific Has Significantly Diminished".

RATINGS AFFECTED

Bangkok Bank (deposits B1 stable; BCA b2)

Bangkok Bank Public Company Ltd. (Hong Kong) (senior unsecured A3 stable)

-- Long-term global foreign currency subordinated debt rating of B1,

downgraded to B3

KASIKORNBANK Public Company Limited (deposits A3 stable; BCA b2)

KASIKORNBANK Public Co. Ltd (Cayman)

-- Long-term global foreign currency subordinated debt rating of B1,

downgraded to B3, from B1

Siam Commercial Bank Public Company Limited (deposits A3 stable; BCA b2)

-- Long-term global foreign currency subordinated debt program rating of

(P)B1, downgraded to (P)B3, from (P)B1

Siam Commercial Bank Public Co. (Cayman) (senior unsecured (P)A3 stable)

-- Long-term global foreign currency subordinated debt program rating of

(P)B1, downgraded to (P)B3, from (P)B1

Siam Commercial Bank Public Co. (Hong Kong) (senior unsecured A3 stable)

-- Long-term global foreign currency subordinated debt program rating of

(P)B1, downgraded to (P)B3, from (P)B1

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Publication:EMBIN (Emerging Markets Business Information News)
Geographic Code:9HONG
Date:Sep 8, 2013
Words:703
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