TRIS Rating Co., Ltd. has affirmed the company rating and the ratings of Krungthai Card PLC’s (KTC) current senior debentures at “BBB+”. At the same time, TRIS Rating has assigned “BBB+” rating to KTC’s proposed issue of up to Bt7,000 million senior debentures. The outlook remains “stable”. The ratings reflect KTC’s experienced management team, solid franchise in the credit card business, and the continued improvement in its risk management system. The ratings also take into consideration the strong support from its parent company, Krung Thai Bank PLC (KTB), which holds a 49.45% stake in KTC. However, the ratings are constrained by KTC’s less competitive cost of funds, the increasingly competitive operating environment, and regulatory risk, which might further affect the industry’s growth potential and profitability.
The “stable” outlook reflects the expectation that KTC will be able to prudently grow its loan portfolio and achieve a balanced mix of business and a balance mix of clients while maintaining overall asset quality, as the economy has largely recovered from the 2008 financial crisis. TRIS Rating also expects that KTB will continue to provide financial and business support to KTC and that the succession plan will be smoothly executed as the current President and Chief Executive Officer approaches his retirement later this year.
TRIS Rating reported that despite the aggressive expansion efforts by several large commercial banks, KTC has successfully maintained its market share at 12%-13% in the credit card business over the last five years, both in terms of spending and the number of accounts. Annual card spending grew from Bt54.4 billion in 2006 to Bt87.9 billion in 2010 while number of accounts grew from 1.40 million to 1.73 million. The size of its loan portfolio represented 16.5% of the total credit card market as of December 2010. In the personal loan business, which KTC started in 2003, its market share rose from 4.6% in 2006 to 6.1% in 2010, based on the size of its loan portfolio.
TRIS Rating said, while its commercial bank competitors finance their loan portfolios relatively cheaply with deposit-based funding, KTC relies on loans and the debt market as its main funding sources. The high funding cost partly offset its franchise strength and made it difficult for KTC to compete more aggressively and expand its market share. The average cost of funds in 2010 was 4.8%, unchanged from 2009. However, rising interest rates are likely to push up KTC’s cost of funds over the next few years. As of 31 March 2011, around 90% of its borrowings were from fixed-rate sources, maturing in 2011, 2012, and 2013 in roughly equal proportions. The intensifying competition and the inability to tap the higher yield segment of the market due to the regulations stipulating the maximum interest rates chargeable and qualifications of credit card and personal loan clients will continue to put pressure on KTC’s profitability.
With the ability to access a diverse funding base, short-term liquidity is not a major concern for KTC. Its portfolio was funded by loans from many financial institutions, and by debentures with a range of maturities. It also has a credit line from KTB worth Bt18,030 million, which remained unutilized as of 31 March 2011. In addition to the funding support, KTC has been utilizing KTB’s nation-wide branch network to expand. Around 10%-20% of KTC’s new credit card and personal loan clients have been obtained through this channel over the last few years.
KTC’s total loan receivables grew slightly from Bt47,237 million as of December 2009 to Bt48,026 million as of December 2010, but remained lower than the December 2008 level of Bt50,587 million. The shrinkage was due to many factors, such as a more stringent credit policy in the personal loan business in 2009 following the economic slowdown, a shift in client mix in the credit card business towards more transactors (convenience users) in 2010, and a change in the write-off policy adopted in 2009. The overall delinquency rate (over 90 days past due) dropped from a peak of over 5% during 2009 to 4.0% as of 31 December 2010, before rising to 4.5% as of 31 March 2011. The net charge-off rate dropped back to 6.8% in 2010, after jumping to 10.4% in 2009. The sharp climb in 2009 was due to a deterioration in asset quality and the change in accounting policy in preparation for the implementation of International Account Standard 39 (IAS 39), which caused the provisioning expenses for bad debts and doubtful accounts to rise from Bt3,288 million in 2008 to Bt5,604 million in 2009.
KTC reported net profit of Bt224 million in 2010 and Bt60 million in the first quarter of 2011, compared with a loss of Bt395 million in 2009. However, the figures were still much lower than the level
of profitability achieved before and during 2008. The operating loss in 2009 was mainly caused by the huge provisioning expenses. Excluding such expenses, pre-provision profit before tax actually rose from Bt3,997 million in 2008 to Bt4,462 million in 2009. However, this figure dropped to Bt3,690 million in 2010 partially because the loan portfolio shrank over the last two years due to the unfavorable economic conditions and KTC’s conservative credit policy, said TRIS Rating. -- End
Company Rating: Affirmed at BBB+ Issue Ratings: KTC126A: Bt4,000 million senior debentures due 2012 Affirmed at BBB+ KTC128A: Bt4,500 million senior debentures due 2012 Affirmed at BBB+ KTC129A: Bt300 million senior debentures due 2012 Affirmed at BBB+ KTC12OA: Bt220 million senior debentures due 2012 Affirmed at BBB+ KTC135A: Bt1,000 million senior debentures due 2013 Affirmed at BBB+ KTC135B: Bt1,000 million senior debentures due 2013 Affirmed at BBB+ KTC135C: Bt1,000 million senior debentures due 2013 Affirmed at BBB+ KTC13NA: Bt7,500 million senior debentures due 2013 Affirmed at BBB+ Up to Bt7,000 million senior debentures due within 2016 BBB+ Rating Outlook: Stable
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