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UOB Thailand outlook changed to negative after acquisition of Citi
Singapore, February 03, 2022 — Moody’s Investors Service (“Moody’s”) has
affirmed the A3 foreign currency deposit rating and all other ratings and
assessments of United Overseas Bank (Thai) Public Co Ltd (UOBT) following
the announced acquisition of assets from Citigroup Inc.’s (Citi, A3 stable).
The outlook was changed to negative from stable because the acquisition will result in a significant decrease in UOBT’s core capital ratio.
Ratings rationale
The negative outlook is driven by the material decrease of UOBT’s core capital ratio after the acquisition is completed in 2022. The bank’s tangible common equity (TCE) to adjusted risk weighted assets ratio (TCE ratio) will decline materially to below 10%, from a strong level of 14.2% as of 30 June 2021 because of goodwill and additional assets, before rebounding to around 11% over the course of three years.
The acquisition will strengthen UOBT’s profitability, because the bank will acquire higher-yielding loans such as credit cards from Citi. Moody’s expects that the bank’s return on assets (ROA) will improve to around 1% in 2023, from 0.8% (annualized) in the first half of 2021. The acquisition will not significantly change UOBT’s asset quality, funding and liquidity.
Factors that could lead to upgrade or downgrade the ratings
Given the negative outlook, UOBT’s ratings are unlikely to be upgraded over the next 12-18 months. Nevertheless, Moody’s could revise the outlook back to stable if the bank’s TCE and ROA ratios improve to more than 11% and 1%, respectively.
Factors that could lead to downgrade the ratings
UOBT’s baa3 baseline credit assessment (BCA) will be downgraded if improvements in the core capital ratio and/or profitability that are expected by Moody’s fail to materialize.
If the BCA is downgraded by one notch, UOBT’s deposit rating might be downgraded by one notch unless Moody’s assumes a higher probability of affiliate support from United
Overseas Bank Limited (UOB, Aa1 stable) on account of UOBT’s higher strategic importance to the parent. UOBT’s A3 rating currently benefits from three notches of uplift because of affiliate support from UOB.
United Overseas Bank (Thai) Public Co Ltd, headquartered in Bangkok, reported total assets of THB725 billion as of 31 December 2021.
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