TRIS Rating Co., Ltd. has assigned the company rating of Thanaban Co., Ltd. (TNB) at “BBB” with “stable” outlook. The rating reflects TNB’s track record of impressive financial performance, the capability of the management team which is experienced in the motorcycle financing business, and solid capitalization. The rating also takes into consideration the developments and improvements in its operating processes and risk management systems through the support of its parent bank, The Thai Credit Retail Bank PLC (TCRB). However, intense competition in the motorcycle financing segment and the high credit risk profiles of its target customers mitigate the strengths of the rating. The “stable” outlook is based on TRIS rating’s expectation that TNB will be able to maintain its market position and deliver satisfactory performance. Loan quality is expected to be controlled at an acceptable level. In addition, conservative business policies will be continued even after the change in ownership. Support from the parent bank is expected to continue.
TRIS Rating reported that TNB was established in late 1978 through the cooperation of three entrepreneurial families. In terms of outstanding loans, the company is the seventh-largest firm among nine major competitors in TRIS Rating’s database. In the Greater Bangkok area, where the company’s business is concentrated, TNB is the third-largest firm in terms of new accounts acquired. Over the past decade, the amount of outstanding loans has ranged from Bt500 to Bt700 million, depending on the competitive environment in each year. TNB’s market position is considered weak when compared with the major firms in the industry. However, TNB’s track record of stabilizing its loan portfolio and its impressive financial performance proves that TNB’s business profile is acceptable, even though motorcycle financing is a high risk business. The strong foundation of TNB’s business helped the company survive as new entrants intensified competition during 2005-2006. The conservative business policy enacted by the founding shareholders has made the high risk, high return motorcycle financing business a success.
TRIS Rating said, in late 2009, TCRB acquired all of TNB’s shares from its founding shareholders. The outstanding performance of TNB is expected to enhance TCRB’s overall performance. After the change in the shareholding structure, plus the support of its parent bank, TNB has improved its operating processes, strengthened its underwriting criteria and collection system, as well as enhanced its risk management systems and policies.
After being acquired by TCRB, TNB’s outstanding loans increased from Bt592 million in 2009 to Bt666 million in 2010 and Bt984 million in 2011. As is the nature of the vehicle financing business, most new accounts are originated through dealers. Although the company has almost 100 dealers in its marketing network, almost 70% of new accounts are typically originated through its top 10 dealers. This means the company is exposed to business concentration risk in terms of the dealers. However, the strong established relationships with its dealers dating back more than 20 years helps TNB mitigate this risk. In addition, the company has been providing good and quick service to its dealers while maintaining conservative underwriting criteria. At the same time, TNB is trying to diversify its dealer base by expanding its market coverage area and increasing the number of active dealers.
TNB’s loan quality has improved since it was acquired by TCRB. The ratio of non-performing loans (NPLs: loans more than three months overdue) to total loans improved and fell from 10.5% in 2008 to 1.6% in 2011. The improvement reflected TNB’s strengthened risk management policies, allowing it to tap customers with higher credit profiles.
In 2009, since TNB obtained more customers with higher credit profiles in an intense competitive environment, profitability deteriorated. The company’s policy with higher down payments to offset financing offers at lower interest rates caused the interest yield to fall from almost 40% in 2008 to around 30% in 2009. This pushed net profit down to Bt45 million in 2009 from Bt70-Bt80 million annually during the five preceding years. The ratio of return on average assets (ROAA) dropped to 6.5% in 2009 from 11.0% in 2008. In 2010 and 2011, performance was burdened by the extra expenses from an advisory agreement. The agreement was signed to ensure smooth transition from the founding shareholders to TCRB. Net profit was Bt40 million in 2010 and improved to Bt53 million in 2011. TRIS Rating expects that profitability will continue to improve in 2012.
TNB’s financial flexibility has been enhanced after it became a subsidiary of TCRB. However, TNB now comes under the “full consolidation” category of consolidated supervision regulations of the Bank of Thailand (BOT). The regulation limits funding supplied to TNB through TCRB to be not more than 11% of TCRB’s capital. TCRB’s small capital base is not enough to support TNB’s funding needs as spelled out in its business plan. TNB, therefore, needs to diversify its funding sources. Leverage is expected to be higher in the near future. However, TNB has a strong capital base. The ratio of shareholders’ equity to total assets, at 56.7% as of December 2011, is adequate for the company to expand the loan portfolio. However, TRIS Rating expects the company to maintain a capital base relatively larger than other financial service businesses. The larger capital base will serve as a cushion to absorb the risk from customers with higher credit risk, who are vulnerable to adverse changes in the economy, said TRIS Rating. — End
Company Rating: BBB Rating Outlook: Stable
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