TRIS Rating Co., Ltd. has affirmed the company rating of BSL Leasing Co., Ltd. (BSL)
at “BBB” with “stable” outlook. The rating reflects the company’s experienced management
team, acceptable risk management practices, improved market position and financial
performance, as well as financial support from the major shareholders. However, these
supportive factors are partly depressed by a lack of network to service customers outside
the central Bangkok area, relatively high leverage ratio compared with peers, and the
limited financial support from Bangkok Bank PLC (BBL), which limits BSL’s financial
flexibility and constrains business growth.
The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to
continue obtaining financial support from major shareholders while diversifying its funding
sources. The outlook also takes into account the expectation that the management team will
be able to maintain a good asset quality and keep its performance in line with TRIS Rating’s
expectations.
TRIS Rating reported that BSL was established in 1985 as a 50:50 joint venture
between BBL, with related companies (BBL Group), and Sumitomo Mitsui Banking Corporation
(SMBC) in Japan (formerly known as Mitsui Taiyo Kobe Bank) to provide industrial equipment
and vehicle financing services under leasing and hire purchase contracts. BSL entered the
factoring business in 2004. Restructurings among some affiliated companies in the BBL Group
in 2005 caused Bank Thai PLC (currently known as CIMB Thai Bank PLC) to end up holding a 10%
stake in BSL while the shareholding of BBL Group fell to 40%. However, in the first half of
2009, BBL bought back the 10% stake from CIMB Thai Bank. This repurchase indicates BBL’s
intention to continue supporting BSL.
TRIS Rating said BSL’s business and market positions continue to improve. The
company was ranked the third out of 12 equipment financing companies in TRIS Rating’s
database as of December 2009, improving from the fifth as of December 2008. BSL’s loan
portfolio doubled from Bt2,438 million in 2004 to Bt4,568 million in 2009. The portfolio
continued rising to Bt4,882 million as of December 2010. BSL’s business is concentrated only
in the Bangkok Metropolitan Area (BMA) with all services provided by the head office. This
limits its potential customers to Bangkok and the nearby areas, and causes the company to be
less geographically diversified than other larger financial institutions.
In 2008, BSL revised its accounting policy for depreciation expenses. The
depreciation method was changed from the “sum of the years digits” (SYD) method to
the “straight-line” method with salvage value included when calculating depreciation
expense. The revised depreciation method substantially improved the financial performance
during 2008-2009 as the depreciation expense from existing assets for lease was
significantly reduced. Net revenue (adjusted for net operating lease revenue) ranged from
Bt100-Bt300 million annually during 2003-2007. Net revenue substantially increased to Bt624
million in 2008, before falling to Bt532 million in 2009. Net revenue returned to a normal
level of Bt445 million in 2010, but remains improved from earlier periods, before the change
in depreciation method, due to expansion of the loan portfolio. The company delivered
relatively high returns on average equity (ROAE) of 26.79% in 2006, 28.19% in 2007, 48.71%
in 2008 and 27.82% in 2009. A larger equity base, a result of outstanding operating
performances in 2008 and 2009, caused the ROAE to fall to 16.37% in 2010.
TRIS Rating said that BSL’s efficient residual risk management has consistently
generated substantial amounts of non-interest income from gains on sale of leased assets.
Before the accounting policy change in 2008, these gains constituted 22%-23% of net revenue.
Gains from sales of residual assets were Bt72 million in 2006, Bt73 million in 2007, and
Bt32 million in 2008 before increasing again to Bt85 million in 2009 due to a large size of
the expired operating lease portfolio. The gains fell to Bt26 million in 2010. After the
change in depreciation method, the gains from sales of residual assets have made a lesser
contribution to total revenue.
On 3 August 2008, the Bank of Thailand (BOT) released a series of revised regulations
covering financial institutions. One regulation limits the amount of debt financing that a
commercial bank may provide to a related company. A related company is one in which a bank
holds more than 10% of the total shares. The amount of debt funding provided to a related
company must not exceed 5% of the lender’s capital funds or 25% of the borrower’s total
liabilities, whichever is lower. The new regulation has constrained BSL’s financial
flexibility as it relied heavily on borrowings from BBL. However, since 2009, BSL has
diversified its funding sources to other financial institutions, and began issuing bills of
exchange in 2010. As of December 2010, only 7% of the company’s total liabilities of
Bt4,164 million was a borrowing provided by BBL. BSL intends to keep the facilities from
BBL as a last resource to secure unexpected short-term liquidity risk.
BSL has a good asset quality, even though it targets customers from small- and medium-
sized enterprises (SME), which are often vulnerable to adverse changes in the economy. The
ratio of non-performing loans (overdue for more than three months) to average loans is
around 2%, relatively low compared with other leasing companies rated by TRIS Rating. -- End
? Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.