TRIS Rating Co., Ltd. has affirmed the company rating of TISCO Bank PLC (TISCOB), a 99.98% owned subsidiary of TISCO Financial Group PLC (TISCO), at “A”, and has also affirmed the ratings of TISCOB’s senior and subordinated debentures at “A” and “A-”, respectively. The outlook remains “positive”. The ratings reflect TISCOB’s capable management team, good risk management system, and the bank’s ability to maintain its strong competitive position in automobile hire-purchase lending. The ratings also take into account the good quality of TISCOB’s assets and its ability to achieve a sustainable level of profits. However, the ratings are constrained by the bank’s limited distribution network compared with larger banks, rising level of leverage as the loan portfolio expands, and possible funding risks caused by uncertain movements in private savings after a drop in the maximum amount of insurance coverage for deposits in August 2012. In addition, TISCOB faces intense competition in the banking industry, as well as uncertainties in the domestic political situation and the worldwide financial arena. These forces may pressure the bank’s profitability as well as its 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 a solid 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. These two abilities 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 way in which it meets the challenges of maintaining its strengths, improving its capital base, and securing stable sources of funding at reasonable prices.
TRIS Rating reported that TISCOB has developed a proficient management team with a conservative management style that has enabled it to grow in niche markets. At the end of 2011, TISCOB was ranked 10th among 15 Thai commercial banks in terms of asset size, with a 2.2% market share in loans and a 0.5% share in deposits. The bank has continually expanded its loan portfolio, with marked year-on-year (y-o-y) growth of 33% in 2010 and 24% in 2011. As of December 2011, TISCOB’s loan portfolio totaled Bt179.6 billion, up by 24% from Bt145.2 billion in 2010. The rise was driven by increases in both corporate and retail lending. The bank has maintained its market position in its core business, auto hire-purchase lending. In 2011, TISCOB was the third-largest among 17 auto loan providers in Thailand, with approximately a 13% market share.
TRIS Rating said, TISCOB’s financial profile has continued to improve. In 2011, net income was Bt2.6 billion, up by 32% from Bt2.0 billion in 2010. Its return on average assets (ROAA) and return on average equity (ROAE) in 2011 increased to 1.41% and 20.22%, respectively, from 1.36% and 17.00% in 2010. The bank’s performance improved primarily because fee-based income increased, and because the bank maintained efficient control of credit and operating costs. However, TISCOB’s interest spread was squeezed in 2011, resulting from a jump in funding costs. Market interest rates rose, which touched off greater competition for funds among lenders. In addition, a new regulation which takes effect in 2012 will increase the regulatory fee charges based on deposits and bills of exchange (B/Es). The new rule may affect TISCOB’s future profitability.
TISCOB’s asset quality has remained strong, as the bank has an effective risk management system in place to control asset quality. As of December 2011, the bank held non-performing loans (NPLs) of Bt2.2 billion, an amount which has steadily declined from Bt2.6 billion in 2008. The ratio of NPLs to total loans fell from 2.5% in 2008 to 1.2% in 2011. The bank’s NPL ratio was the lowest in the industry and below the industry average of 3.7% for the 15 Thai commercial banks. TISCOB’s reserves for loan losses remained high, with reserves equal to 185% of NPLs in 2011, up from 164% in 2010. TISCOB’s non-performing assets (NPAs; the sum of classified loans more than three months overdue, plus restructured loans and foreclosed property) were only 0.17 times its capital funds plus the allowance for doubtful accounts in 2011. This level was better than the industry average of 0.51 times. Despite the heavy flooding in Thailand in late 2011, TISCOB’s loan credit profile remained healthy. The bank’s NPLs are expected to remain under control.
In terms of funding and liquidity, TISCOB is exposed to some level of liquidity risk. TISCOB has relied on wholesale funding, which tends to be a more volatile funding source than retail deposits. At the end of 2011, the majority of TISCOB’s funds comprised large depositors and lenders (deposits or B/Es of over Bt10 million). Funds from large depositors and lenders accounted for 73% of its funding base, that is, deposits plus B/Es. The bank’s liquidity may weaken, should a large number of depositors or lenders wish to withdraw their funds at once. To offset this threat, TISCOB has planned to increase the number of retail accounts in an effort to diversify its sources of funding. The cap on insured deposits will fall from Bt50 million to Bt1 million in August 2012, in accordance with the Deposits Protection Agency Act (DPA). Although any dramatic change in the deposit base is unlikely, depositors may elect to move their funds from one financial institution to another after the cap on insured deposits falls. The possibility of movements in private savings may affect TISCOB’s financial strength and the stability of its funding sources.
TISCOB has utilized the Basel II Internal Rating 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 can help the bank improve the efficiency of its risk and capital management activities. In 2011, TISCOB reported a Tier 1 ratio and a total capital ratio (BIS ratio) of 9.88% and 14.91%, respectively, down from 11.29% and 15.23% in 2010. The two ratios dropped because the loan portfolio expanded rapidly. The bank’s BIS ratio was close to the industry average of 14.79%, and far above the minimum requirement of 8.5% set by the Bank of Thailand (BOT). Nonetheless, TISCOB’s equity to assets ratio has continually decreased, falling from 9.3% in 2008 to 7.5% in 2010 and to 6.5% in 2011. This level is below the industry average of 9.6% in 2011. TISCOB’s current capital base, however, remains sufficient for its expansion efforts and is sufficient to absorb any unexpected losses in the medium term, said TRIS Rating. — End
Company Rating: Affirmed at A Issue Ratings: Bt20,000 million senior debentures under medium-term debenture program: - TISCO133A: Bt4,324.3 million senior debentures due 2013 Affirmed at A - TISCO133B: Bt1,000 million senior debentures due 2013 Affirmed at A - TISCO134A: Bt503.9 million senior debentures due 2013 Affirmed at A TISCO192A: Bt2,000 million subordinated debentures due 2019A- Affirmed at A- TISCO195A: Bt2,000 million subordinated debentures due 2019 Affirmed at A- TISCO205A: Bt1,000 million subordinated debentures due 2020A- Affirmed at A- TISCO20DA: Bt1,000 million subordinated debentures due 2020 Affirmed at A- TISCO223A: Bt1,000 million subordinated debentures due 2022 Affirmed at A- Rating Outlook: Positive
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