RAM Ratings has affirmed CIMB Thai Bank Public Company Limited's (CIMB Thai or the Bank) AA2/Stable/P1 financial institution ratings and the AA3/Stable rating of its RM2 bil Tier-2 Subordinated Debt Programme (2014/2044).

The ratings it said reflect the expectation of continued support from CIMB Thai's immediate parent, CIMB Bank Berhad (rated AAA/Stable/P1), when needed given the Bank's strategic role in CIMB Group Holdings Berhad's (the Group) ASEAN-focused strategy.

CIMB Thai's gross impaired loan (GIL) ratio eased to 3.0% as at end-June 2024 (end-December 2022: 3.3%) (Thai banking industry: 2.8%), but largely due to the impact of sizeable impaired loan disposals in 2Q 2024. Challenges in the Thai auto market, including a decline in used car prices and weakened borrower debt repayment ability amid a sluggish economy, have led to increased impairments in the Bank's auto hire purchase receivables. This surge, coupled with higher management overlays, pushed CIMB Thai's credit cost ratio to 1.4% in FY Dec 2023 and 1.1% in 1H FY Dec 2024 (annualised) (FY Dec 2022: 0.8%).

CIMB Thai's return on assets has ranged between 0.4%-0.8% over the past five years, weighed down by its elevated cost structure. Its cost-to-income ratio stayed high at 57.8% in FY Dec 2023 (FY Dec 2022: 56.7%). In FY Dec 2023 and 1H FY Dec 2024, profitability was further squeezed by heftier provisions and notable margin compression. We expect near-term earnings upside to be limited as loan impairment charges remain lofty this year.

As at end-June 2024, CIMB Thai's common equity tier-1 capital ratio fell slightly to 15.5% (end-December 2022: 16.2%) (industry: 16.1%) but still robust. This, combined with its strengthened loan-loss coverage, provides a strong buffer to withstand lingering asset quality pressures. As at end-June 2024, the Bank's GIL coverage ratio stood at a higher 132.6% (end-December 2022: 113.8%).