CIMB Thai Bank PCL's plan to raise approximately 4 billion Thai baht via a rights issue is credit positive for the bank, Moody's said.
The rating agency said Sept. 10 that the capital increase will strengthen the bank's recent efforts to boost its loss-absorbing buffers, as well as support its business growth. Using CIMB Thai Bank's capital position as of June 30, the rating agency estimates that the rights issue will improve the bank's common equity Tier 1 ratio by about 1.5% to 13.5%.
Compared with other Thai banks, CIMB Thai Bank's loss-absorption buffers are lower due to its leaner capitalization and weaker asset quality. As of June 30, the bank's ratio of nonperforming loans to the sum of shareholders' equity and loan-loss reserves was 28%, compared with an average of 15% for the other seven Moody's-rated Thai commercial banks.
The additional capital will also support CIMB Thai Bank's loan growth, which Moody's expects to be in the mid-single digit over the next 12 to 18 months because the bank's internal capital generation remains strained by high credit costs. As of year-end 2017, the bank's internal capital growth was 1.2%, compared with the average of 6.2% for the other rated commercial banks in Thailand.
The rights issue is planned for October. Under Bank of Thailand's regulations, foreign investors are allowed to acquire majority shareholding in local financial institutions for up to 10 years, after which they will be grandfathered as to the amount of shares held and will not be permitted to take up new shares. Therefore, 2018 marks the final year that CIMB Thai Bank could raise capital from parent CIMB Bank Bhd. apart from crisis situations since the CIMB Bank acquired the bank in 2008.
CIMB Bank is a unit of CIMB Group Holdings Bhd.
As of Sept. 7, US$1 was equivalent to 32.80 Thai baht.