TRIS Rating Co., Ltd. has assigned an “A-” rating to the proposed issue of up to Bt2,000 million in subordinated debentures of TISCO Bank PLC (TISCOB), a 99.98% owned subsidiary of TISCO Financial Group PLC (TISCO). At the same time, TRIS Rating has affirmed the company rating of TISCOB 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, and a rising level of leverage as the loan portfolio expands rapidly. In addition, TISCOB faces intense competition in the banking industry, as well as uncertainties in the worldwide financial arena. These forces may pressure the bank’s future profitability as well as its long-term competitiveness. The “positive” outlook reflects the likelihood that TISCOB will retain its strong market position in its auto hire-purchase lending, 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. 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 June 2012, TISCOB was ranked 10th among 15 Thai commercial banks in terms of asset size, with a 2.5% market share in loans and a 1.0% share in deposits. The bank has continually expanded its loan portfolio, with marked year-on-year (y-o-y) growth of 33% in 2010, 24% in 2011, plus 20% y-o-y growth for the six month period ending in June 2012. TISCOB’s loan portfolio totaled Bt203.5 billion as of June 2012, up by 13% from Bt179.6 billion in 2011. 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. As of March 2012, TISCOB was the third-largest among 17 auto loan providers in Thailand, with approximately a 13% market share.
TRIS Rating said, TISCOB’s financial performance has improved. Net income was Bt2,630 million in 2011, up by 32% y-o-y. 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. For the first six months of 2012, TISCOB delivered net profit of Bt1,362 million, up by 1% y-o-y. The performance improved primarily because of an increase in fee-based income and the efficient control of credit and operating costs. However, TISCOB’s interest spread was squeezed in 2011 and the first half of 2012, 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, increases 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 June 2012, the bank held non-performing loans (NPLs) of Bt2.4 billion, down from Bt2.6 billion in 2008. The ratio of NPLs to total loans fell steadily from 2.52% in 2008 to 1.18% as of June 2012. The bank’s NPL ratio remained the lowest in the industry and below the industry average of 3.37%. TISCOB maintains a sufficient cushion of capital and allowances for doubtful accounts. As of June 2012, non-performing assets (NPAs; the sum of classified loans more than three months overdue, plus restructured loans, and foreclosed property) were only 0.18 times its capital funds plus the allowance for doubtful accounts. This level was far better than the industry average of 0.47 times.
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. In 2011, the majority of TISCOB’s funds comprised funds from large depositors and lenders (deposits or B/Es of more than Bt10 million). Funds from large depositors and lenders accounted for 73% of TISCOB’s 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.
TISCOB’s capital base remains sufficient for its expansion efforts and is sufficient to absorb any unexpected losses in the medium term. TISCOB has utilized the Basel II Internal Rating Based (IRB) approach to calculate the regulatory-mandated amount of capital needed based on credit risk. This process can help the bank improve the efficiency of its risk management and capital management activities. As of June 2012, TISCOB reported a Tier 1 ratio and a total capital ratio (BIS ratio) of 9.40% and 14.34%, respectively, down from 9.88% and 14.91% in 2011. These ratios dropped because TISCOB’s loan portfolio expanded rapidly. The bank’s Tier 1 ratio and BIS ratio were lower than the industry averages of 11.35% and 15.84%, respectively, but remained above the minimum requirements of 4.25% and 8.50%, set by the Bank of Thailand (BOT), 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 2019 Affirmed at A- TISCO195A: Bt2,000 million subordinated debentures due 2019 Affirmed at A- TISCO205A: Bt1,000 million subordinated debentures due 2020 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- Up to Bt2,000 subordinated debentures due within 2022 A- Rating Outlook: Positive
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