TRIS Rating has affirmed the company rating of TISCO Financial Group PLC (TISCO) at “A-” with “stable” outlook. TISCO’s rating reflects its position as an investment holding company of TISCO Group, its control of TISCO Bank PLC (TISCOB) through a 99.99% ownership stake, and a stable stream of dividends received from TISCOB. The rating takes into consideration the capability and experience of TISCO’s management team, its ability to keep its strong market position in the auto hire purchase segment, a sound risk management system, and TISCO’s diverse sources of income. These strengths, however, are partially offset by TISCO’s high level of leverage as the asset base expands rapidly. The rating is also constrained by intense competition in the banking, hire purchase, and securities industries, plus economic and political uncertainty. These factors might limit the Group’s opportunities to expand and limit its profitability in the future. The “stable” outlook reflects the anticipation that TISCO will maintain its strong market position in auto hire purchase lending, sustain the good quality of its loan portfolio, and deliver the sound financial performance. TISCO’s rating and outlook are influenced by the credit ratings of its core subsidiary, TISCOB.
TISCO’s company rating is one notch lower than the company rating of its core bank subsidiary, TISCOB. The one notch difference reflects the structural subordination of TISCO’s obligations to those of TISCOB, TISCO’s dependence on dividends from TISCOB, and the regulatory barrier surrounding the payment of the dividends.
In 2008, TISCO was set up as a holding company and the parent company of the group of affiliated companies, in place of TISCOB. TISCO’s largest shareholder was CDIB & Partners Investment Holding Pte. Ltd., with a 10% stake as of December 2013. The remaining shares belonged to local and foreign investors. At the end of 2013, TISCO was ranked ninth among all 15 Thai commercial banks based on consolidated asset size, with a 2.9% market share in loans and a 2.6% share in deposits. TISCO’s management team directs the company so as to support the competitive positions of its subsidiaries. TISCOB, a bank and the core subsidiary, has maintained its strong market position in auto hire purchase lending. TISCOB was the fourth-largest of 16 auto loan providers in TRIS Rating’s database, with approximately 12% market share at the end of 2013. TISCO’s major revenue source is TISCOB, which contributes the largest portion (86%) of total interest income plus fee-based income. The remainder was contributed by TISCO Securities Co., Ltd. (TSC), TISCO Asset Management Co., Ltd. (TISCOASSET), and Hi-Way Co., Ltd. (Hi-Way).
TISCO’s loan portfolio comprises retail loans (70% of total loans), followed by corporate loans (18%), small and medium-sized enterprises, or SME loans (11%), and other loans (1%). At the end of 2013, TISCO’s loan portfolio grew by 18% year-on-year (y-o-y), climbing to Bt292.2 billion. Hire purchase lending, a core business, has steadily expanded, with the loan portfolio growing at a compound annual growth rate of 23% over the past five years. TISCO has established a good risk management framework, with a consolidated and centralized risk management system. TISCO can maintain the good quality of its assets, as reflected by the ratio of non-performing loans (NPLs) to total loans. This ratio was the lowest in the banking industry. However, the NPLs to total loans ratio has increased lately because of unfavorable economic conditions. In 2013, NPL ratio equaled 1.70%, up from 1.25% in 2012. TISCO has maintained an adequate cushion of capital and allowances for doubtful accounts in order to absorb the risks from its non-performing assets (NPAs; classified loans more than three months overdue, plus restructured loans and foreclosed property). In 2013, NPAs as a percentage of total capital funds plus the allowance for doubtful accounts was 16%, below the industry average of 41%.
TISCO has delivered sound financial performance. Net income rose to Bt4.4 billion in 2013, up by 17% y-o-y, as interest income and fee-based income rose. However, TISCO’s profitability has slipped during the past few years. Return on average assets (ROAA) has continually declined, falling to 1.3% in 2013, from 1.5% in 2012 and 1.7% in 2011. The interest spread fell to 2.45% in 2013, from 4.28% in 2010. Funding costs remain higher than the industry average. Nonetheless, TISCO’s cost controls help mitigate some of the negative effects from the high cost of funds.
In terms of capital funds, TISCO has a higher degree of financial leverage than its peers. Its total equity to total assets ratio has fallen continuously, sliding from 9.14% in 2008 to 6.33% in 2012. This ratio declined because TISCO expanded its loan portfolio rapidly, and paid generous dividends to its shareholders. TISCO bolstered its capital base in 2013. The company raised Bt1.7 billion in new equity capital through the Transferable Subscription Rights (TSR) program. After the capital increase, the total equity to total assets ratio increased slightly to 6.46% as of December 2013. TISCO has applied the Internal Rating Based (IRB) approach to calculate the amount of regulatory capital needed by the Group based on credit risk. This approach can help TISCO improve the efficiency of its risk management and capital management activities. TISCO has a sufficient capital base to fund its loan growth plans in the medium term. As of June 2013, TISCO reported a Tier-1 ratio and a total capital ratio (BIS ratio) of 8.82% and 12.58%, respectively, above the minimum requirements set by the Bank of Thailand (BOT).
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