TRIS Rating has affirmed the company and senior debenture ratings of BSL Leasing Co., Ltd. (BSL) at “BBB” with “stable” outlook. The ratings reflect the company’s experienced management team, acceptable risk management practices, and its better asset quality than peer companies’. The ratings also incorporate the improvement in BSL’s leverage ratio and the financial support it receives from its major shareholders. However, these supporting factors are partly offset by the lack of an extensive network to service customers outside the central Bangkok area and the limits imposed on the financial support received from the major shareholder, Bangkok Bank PLC (BBL). The limits might constrain BSL’s growth and financial flexibility. The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to continue obtaining financial support from its major shareholders, while continuing to diversify its funding sources. The outlook also takes into account the expectation that the management team will be able to maintain good asset quality and perform in line with TRIS Rating’s expectations.
BSL was established in 1985 as a 50:50 joint venture between BBL, including companies owned by and affiliated with BBL (BBL Group), and Sumitomo Mitsui Banking Corporation (SMBC) in Japan (formerly known as Mitsui Taiyo Kobe Bank). BSL was established to provide industrial equipment and vehicle financing services under leasing and hire purchase contracts. BSL entered the factoring business in 2004. Currently, BSL’s major shareholders are BBL, holding 50% stake, SMBC (40%), and another (10%). Both BBL and SMBC have provided supports to BSL in terms of credit facilities and some level of business referrals.
Amidst a high level of competition, BSL’s market position fell to the sixth place, down from the fourth place, ranking out of 11 equipment financing companies in TRIS Rating’s database as of December 2011. BSL’s loan portfolio increased from Bt3,828 million in 2007 to Bt4,877 million in 2010. The portfolio continued rising, reaching Bt5,255 million in 2011 and Bt5,429 million through the first nine months of 2012 . BSL’s business is concentrated only in the Bangkok Metropolitan Area (BMA) and only the head office provides services. Larger financial institutions are typically more geographically diversified than BSL. The limited geographic coverage area limits BSL’s potential customers to Bangkok and the nearby provinces.
In 2008, BSL revised its accounting policy for depreciation expenses. The depreciation method was changed from the “sum of the years digits” method (SYD) to the “straight line” method. The company also now nets the salvage value of a leased asset with the asset acquisition cost when calculating the depreciation expense charges for a leased asset. The revised depreciation method substantially improved the company’s financial performance during 2008-2009. The amount of depreciation expense from existing leased assets is now lower.
Net revenue (adjusted for net operating lease revenue) ranged from Bt100-Bt300 million annually during 2003-2007, before a substantial increase to Bt624 million in 2008 and a subsequent drop to Bt532 million in 2009. Net revenue decreased to normal levels of Bt415 million and Bt412 million in 2010 and 2011, respectively. Despite the fall, net revenue remained higher than in 2003-2007, before the change in the depreciation method. The company delivered relatively high returns on average equity (ROAE) of 48.71% in 2008 and 27.82% in 2009, but ROAE declined to a normal level of 16.43% in 2010. In 2010, BSL earned a net profit of Bt150 million, but the net profit tumbled to Bt54 million in 2011. The ROAE plunged to 5.31% in 2011 because BSL recognized a reduction in the value of a deferred tax assets after the corporate rate income tax rate has been reduced from 30% to 23% in 2012 and 20% in 2013 and 2014. This accounting change was a one-time, non-cash item. Excluding this item, BSL would have shown a normal level of profits for 2011. In the first nine months of 2012, BSL reports net profit of Bt119 million and its ROAE returned to a normal level at 14.16% (annualized)
BSL efficiently manages the residual risk of its leased assets. The efficient management has consistently generated substantial amounts of non-interest income for BSL, as it has made gains on the sale of previously-leased (residual) assets. Before the change in accounting policy in 2008, these gains constituted 22%-23% of net revenue. Gains from the sale of residual assets were Bt72 million in 2006, Bt73 million in 2007, and Bt32 million in 2008, before increasing to Bt85 million in 2009. The jump in 2009 came because there were a large number of operating leases in the lease portfolio which expired that year. The gains from the sale of residual assets fell to Bt23 million, Bt29 million, and Bt18 million in 2010, 2011, and the first nine months of 2012, respectively. After BSL changed its depreciation policy, the gains from the sale of residual assets have comprised a smaller portion of BSL’s total revenue, ranging around 2.7%-3.3% of total revenue in 2010 until the first nine months of 2012
BSL’s assets are of good quality, although it targets small- and medium-sized enterprises (SMEs), which are often vulnerable to adverse changes in the economy. The ratio of non-performing loans (NPLs -- overdue for more than three months) to average loans was 1.76% in 2011. In the first nine months of 2012, the ratio of NPLs to total loans increased to 2.06%. However, this level is lower than the levels at other leasing companies rated by TRIS Rating.
Currently, the Bank of Thailand (BOT) has formally approved BBL to maintain a 35.88% shareholding stake in BSL. Despite the approval, BSL and BBL must still comply with a regulation that limits the amount of loans that a commercial bank may provide to a related company, in which a bank holds more than 10% of the total shares. The total of the loans made to a related company must not exceed 5% of the lender’s capital funds or 25% of the borrower’s total liabilities, whichever is lower. This regulation has constrained BSL’s financial flexibility because in the past, BSL relied heavily on borrowings from BBL. Since 2009, BSL has diversified its funding sources to other financial institutions. BSL began issuing bills of exchange (B/E) in 2010 and issued Bt500 million in senior debentures in 2011 and issued US$20 million of Shokun bonds in August 2012. As of September 2012, 4% and 16% of the company’s total liabilities of Bt5,329 million were borrowings from BBL and SMBC, respectively. BSL has sufficient available credit line to finance its current short-term liquidity gap. The company has secured BBL’s credit line as its liquidity last resort.
Company Rating: BBB Issue Rating: BSL136A: Bt500 million senior debentures due 2013 BBB Rating Outlook: Stable
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