TRIS Rating Co., Ltd. has assigned the company rating of TISCO Bank PLC (TISCOB), a 99.98% owned subsidiary of TISCO Financial Group PLC (TISCO), at “A” and has also assigned the ratings of TISCOB’s senior and subordinated debentures at “A” and “A-”, respectively. The outlook is “positive”. The ratings reflect TISCOB’s capable management team, good risk management system, and ability to keep its strong competitive position in auto hire-purchase lending. The ratings also take into account the good quality of TISCOB’s assets and the bank’s ability to achieve a sustainable level of profits. However, the ratings are constrained by the bank’s limited distribution network compared with larger banks, and the unforeseen risks coming from the implementation of the Deposits Protection Agency Act (DPA), which will be effective on 11 August 2011. In addition, TISCOB also faces intense competition in the auto hire-purchase business, as well as uncertainties in the domestic political situation and global financial arena. These forces may affect the bank’s long-term competitiveness.
The “positive” outlook reflects the likelihood that TISCOB will retain its strong market position in the auto hire-purchase business and deliver the expected financial performance in the medium term. The outlook also reflects the bank’s ability to control asset quality and maintain a sufficient amount of capital funds, which will help mitigate future downside risks from the uncertain economic and business environment. Going forward, TISCOB’s ratings and outlook will be influenced by the challenges it faces from any unforeseen outcomes arising after the DPA takes effect, such as the ability to maintain its strengths and secure stable sources of funding at reasonable prices.
TRIS Rating reported that TISCOB has developed a proficient management team with a prudent management style that has enabled it to grow in niche markets. At the end of 2010, TISCOB was ranked 10th among all 13 Thai universal banks in terms of asset size, with 2.2% market share in loans and 0.7% share in deposits. The bank has continually expanded its loan portfolio, reaching a 21% annual average growth rate over the past five years. As of December 2010, TISCOB’s loan portfolio was Bt145 billion, up by 33% from Bt109 billion in 2009, as the bank made more loans to both corporate and retail customers. The bank has also improved its market position in its core business, hire-purchase lending. At the end of 2010, TISCOB was the third-largest auto loan provider in Thailand with about 13% market share based on TRIS Rating’s database.
TISCOB’s financial profile has continually strengthened. In 2010, net income was Bt1,993 million, up by 47% from Bt1,357 million in 2009, while its return on average assets (ROAA) and return on average equity (ROAE) in 2010 improved to 1.36% and 17%, respectively, compared with 1.08% and 12.03% in 2009. The improvement was driven by an increase in net interest income with a wider interest spread, an increase in fee-based income, as well as the efficient control of operating costs.
TISCOB has an effective risk management system in place to control asset quality. The bank’s asset quality remained strong, as reflected in the continual decrease in the non-performing loans (NPL) to total loans ratio. At the end of 2010, TISCOB’s NPL ratio declined to 1.6%, the lowest level in the industry, and far below the industry average of 4.7% for 11 Thai universal banks (excluding United Overseas Bank (Thai) PLC and Standard Chartered Bank (Thai) PLC) in TRIS Rating’s database. Furthermore, TISCOB’s non-performing assets (NPA) (classified loans more than three months overdue, plus outstanding troubled debt being restructured, and foreclosed property) were 0.2 times its capital funds plus the allowance for doubtful accounts. This ratio improved from 0.27 times in 2009, and remains lower than the industry average of 0.6 times.
In terms of funding and liquidity, TRIS Rating said that TISCOB continues to concentrate on wholesale funding, which tends to be a more volatile source of funding. At the end of 2010, the bank continued to rely on large depositors (deposits over Bt10 million), which provided 77% of total deposits and bills of exchange. The bank may face liquidity problems if a large number of depositors wish to withdraw their funds at once. To offset this threat, TISCOB has a strategy to increase the number of retail accounts to diversify its sources of funding. In addition, the bank is exposed to unforeseen risks arising from the implementation of the DPA. The new Act may affect TISCOB’s strengths and the stability of its sources of funding.
In terms of its capital base, at the end of 2010, TISCOB reported Tier 1 and total capital ratios of 11.29% and 15.23%, respectively, down from 12.46% and 16.96% in 2009, as a result of its business expansion. Although the bank’s total capital ratio was a bit lower than the industry average of 15.42% for 11 Thai universal banks, it remained sufficient and far above the minimum requirement of 8.5% set by the Bank of Thailand (BOT). TISCOB has utilized the Basel II Internal Ratings Based (IRB) approach to calculate the regulatory mandated amount of capital needed, based on credit risk. The bank has also established the Internal Capital Adequacy Assessment Process (ICAAP). These processes could help the bank improve the efficiency of its risk management and capital management activities in the future, said TRIS Rating. -- End
Company Rating: A Issue Ratings: TSCO125A : Bt1,000 million senior debentures due 2012 A TISCO192A: Bt2,000 million subordinated debentures due 2019 A- TISCO195A: Bt2,000 million subordinated debentures due 2019 A- TISCO205A: Bt1,000 million subordinated debentures due 2020 A- TISCO20DA: Bt1,000 million subordinated debentures due 2020 A- Rating Outlook: Positive
TRIS Rating Co., Ltd./www.trisrating.com Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand 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.