TRIS Rating Co., Ltd. has affirmed the company rating of TISCO Financial Group PLC (TISCO) at “A-” with “positive” outlook. The rating reflects TISCO’s position as an investment holding company of TISCO Group, the control of TISCO Bank PLC (TISCOB) through a 99.98% ownership stake, and a stable stream of dividends from TISCOB. TISCO’s rating is one notch lower than the rating of its core bank subsidiary, TISCOB. The one notch difference reflects TISCO’s dependence on dividends from TISCOB and the regulatory barrier surrounding the payment of the dividends. The rating takes into consideration the capability and experience of TISCO’s management team, sound risk management system, well-diversified sources of income, and the ability to keep a strong market position in the auto hire-purchase business. These strengths, however, are partially offset by the possible funding risks which may arise after the reduction of the maximum amount of insured deposits in August 2012. The rating is also pressured by the rising level of leverage as the asset base expands; intense competition in the banking, hire-purchase, and securities industries; as well as uncertainties in the economic and political environments. These factors might limit the group’s expansion opportunities and future profitability. The “positive” outlook reflects the anticipation that TISCO will deliver the expected financial performance in the medium term. The outlook also reflects TISCO’s good risk management system which will help alleviate future downside risks from the uncertain economic and financial environments. A possible rise in TISCO’s funding costs and an unstable retail deposit base caused by the full implementation of the Deposits Protection Agency Act (DPA) in August 2012 remain concerns. Going forward, TISCO’s rating and outlook will be influenced by the credit rating of its core subsidiary, TISCOB.
TRIS Rating reported that in 2008, the TISCO Group implemented a restructuring plan. TISCO was set up as a holding company and the parent company of the group of affiliated companies, in place of TISCOB. As of December 2011, TISCO’s largest shareholder was CDIB & Partners Investment Holding Pte Ltd. with a 10% stake, while the remaining shares belonged to local and foreign investors. At the end of 2011, TISCO was ranked 10th among all 15 Thai commercial banks based on consolidated asset size, with a 2.3% market share in loans and a 0.5% share in deposits. On a consolidated basis, TISCO’s total assets were Bt220.7 billion in 2011, up by 29% from Bt171.4 billion in 2010. In 2011, TISCO’s revenue base became more diversified as reflected by the fee-based income to total income ratio of 19% compared with the industry average of 17% for 15 Thai commercial banks. TISCO’s revenues came from its subsidiaries. TISCOB distributed the largest portion at 85% of interest income plus fee-based income. The remaining 15% was primarily contributed by TISCO Securities Co., Ltd. (TSC), TISCO Asset Management Co., Ltd. (TISCOASSET), and Hi-Way Co., Ltd.
TRIS Rating said, TISCO’s profitability has remained strong. The company’s net profit rose by 13% to Bt3.3 billion in 2011 from Bt2.9 billion in 2010. In 2011, TISCO’s return on average assets (ROAA) and return on average equity (ROAE) slightly dropped to 1.7% and 21.0%, respectively, from 1.9% and 21.1% in 2010. However, the ratios remained above the 2011 industry averages of 1.3% and 12.8%. In 2011, TISCO’s funding costs were higher, as interest rate rose and there was more competition for funds among lenders. However, TISCO could sustain its performances with the efficient control of credit costs and operating costs.
In terms of asset quality, TISCO has established a good risk management framework, with a consolidated and centralized risk management system. As a result, TISCO has good quality assets, as reflected by ratio of non-performing loans (NPLs) to total loans which equaled 1.2% in 2011. This level is the lowest in the industry. TISCO has maintained an adequate cushion of capital and allowance for doubtful accounts to absorb the risks from the non-performing assets (NPAs; classified loans more than three months overdue, plus restructured loans and foreclosed property). In 2011, the ratio of NPAs to capital funds plus the allowance for doubtful accounts was 0.15 times. This ratio improved from 0.19 times in 2010, and is now far below the industry average of 0.51 times.
TISCO has developed a proficient management team with a conservative management style that has enabled the company to support the competitive positions of its subsidiaries. The company’s consolidated risk management framework has improved continuously to match international standards. However, the highly competitive banking and securities industries may limit the future growth and profitability of the TISCO Group, said TRIS Rating. — End
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