CIMB Thai moves to beef up thin capital buffers

It is planning to increase its capital by $120m through a rights issue.

The move by CIMB Thai Bank to raise its capital by approximately $120m (THB4b) via a rights issue is widely lauded as a positive development boost its thinning loan-absorbing buffers which are largely lower than other commercial banks in Thailand, according to credit rating agency Moody’s. 

Due to the bank’s thin loss-absorption buffers, CIMB Thai grapples with weaker asset quality with nonperforming loan (NPL) ratio to the sum of shareholders’ equity and loan-loss reserves clocking in at 28% as of end-June, versus an average of 15% for the other seven Thai commercial banks that Moody’s rates.

The capital raising round is expected to boost the bank’s Common Equity Tier 1 (CET1) ratio by about 1.5 percentage points to 13.5%, bringing it closer to the average of other commercial banks at 14.5%.

The additional capital will also support CIMB Thai’s loan growth, which we expect to be in the mid-single digit over the next 12–18 months, because its internal capital generation remains strained by high credit costs.

As of end-2017, CIMB Thai's internal capital growth was 1.2%, compared with the average of 6.2% for the other rated commercial banks in Thailand.