TRIS Rating has upgraded the company rating and the senior unsecured debenture ratings of Ayudhya Capital Auto Lease PLC (AYCAL) to “AA-” from “A+”. At the same time, TRIS Rating has replaced AYCAL’s “developing” CreditAlert with a “stable” outlook. The rating upgrade reflects the stronger credit profile of AYCAL’s parent company, Bank of Ayudhya PLC (BAY), rated “AAA” with a “stable” outlook by TRIS Rating. AYCAL’s company rating is enhanced from its stand-alone rating as AYCAL is a strategic subsidiary of BAY. AYCAL’s operation as a motorcycle hire purchase lender reinforcs BAY’s efforts to be a universal bank. AYCAL’s stand-alone rating is based on the proven track record of the company’s management team and its position as the leading originator of motorcycle hire purchase loans. The stand-alone rating reflects three factors. AYCAL’s leverage fell after it completed a recent capital restructuring. AYCAL also has a rigorous risk management system. The rating also reflects AYCAL’s high level of financial flexibility because it can receive an unlimited amount of funding from BAY. The “Stable” outlook reflects the expectation that AYCAL’s business direction will remain closely aligned with BAY’s business strategy, and the assumption that AYCAL will continue to receive a high level of support from its parent company. The outlook also considers the ability of the management team to maintain AYCAL’s strong market position as a motorcycle hire purchase lessor. With its experienced management team, rigorous risk management system, and strong support from BAY, TRIS Rating expects AYCAL to improve its profitability and maintain a capital base strong enough to cushion any downside risks in the motorcycle hire purchase business.
AYCAL became BAY’s wholly-owned subsidiary in February 2008. AYCAL’s total loans and receivables as of September 2014 accounted for 18% of BAY’s consolidated loans. Net income of AYCAL for the first nine months of 2014 comprised 20% of BAY’s consolidated net income for the same period. AYCAL receives a significant amount of business and financial support from BAY. The support it receives is expected to further enhance AYCAL’s market position in its core businesses and improve its financial flexibility. As an indication of the financial support AYCAL receives from BAY, loans to AYCAL comprised 55% of BAY’s total lending to subsidiaries as of September 2014.
Before 2014, AYCAL was the only subsidiary of BAY which made auto loans, under the name “Krungsri Auto”. The company provided hire purchase financing for the purchase of new cars, used cars, and motorcycles, and offered secured personal loans to consumers through auto sales and lease back agreements. However, since the beginning of 2014, AYCAL has adopted a new auto financing business model, where all new auto loans, including auto hire purchase financing and secured personal loans, have been booked at BAY. AYCAL now offers only motorcycle financing services, but continues to manage its existing portfolio of auto loans. This move has been part of the Krungsri Group’s business strategy, which is expected to increase competitive advantage and deliver long-term sustainable growth. AYCAL also renders collection services to BAY. AYCAL is the largest of the 10 large motorcycle hire purchase lenders in TRIS Rating’s database. AYCAL’s outstanding loans reached Bt9.3 billion at the end of 2013, representing about 26% market share. The loan portfolio grew to Bt10.5 billion as of September 2014.
With 20 years of experience in the industry, AYCAL has developed a proficient management team and a strong business platform. These two factors give it a competitive advantage and help it keep its market-leading position. AYCAL uses BAY’s risk management model. BAY inherited the model from its previous strategic shareholder, GE Capital International Holdings Corporation (GECIH), and its current strategic shareholder, the Bank of Tokyo Mitsubishi UFJ Co., Ltd. (BTMU). In addition, both AYCAL and BAY are regulated under the same standard criteria set by the Bank of Thailand (BOT). Due to its prudent credit risk management system and an efficient collection system, AYCAL’s asset quality improved in 2012. The non-performing loan (NPL) ratio, defined as loans more than three months past due divided by total loans, decreased from 1.89% at the end of 2011 to 1.25% at the end of 2012. However, the ratio gradually climbed to 1.62% at the end of 2013 and 1.76% as of September 2014, possibly owing to the current domestic economic slowdown.
AYCAL’s profitability slightly declined in 2013 due to huge drops in the prices of used automobiles and used motorcycles. AYCAL suffered significant losses on the sales of repossessed vehicles, as did many of its peers. AYCAL’s net income decreased to Bt3,443 million in 2013 from Bt4,750 million in 2012. The return on average assets (ROAA) and the return on average equity (ROAE) also dropped in 2013. The ROAA fell to 1.6% in 2013, compared with 2.68% in 2012. The ROAE slipped to 15.94% in 2013, from 27.14% in 2012. For the first nine months of 2014, AYCAL’s financial performance slightly declined from the same period last year, due to higher losses on the sales of repossessed vehicles. Net income was Bt2,300 million, down by 16% from Bt2,746 million for the first nine months of 2013. ROAA and ROAE (non-annualized) slid to 1.13% and 8.75%, respectively, down from 1.27% and 12.92% for the first nine months of 2013.
AYCAL’s high level of financial flexibility stems from AYCAL’s status as one of BAY’s solo consolidated subsidiaries. As a solo consolidated subsidiary, AYCAL must comply with BOT’s consolidated supervisory standards. In return, BAY, the parent company, can provide an unlimited amount of funding to its subsidiary.
AYCAL strengthened its capital base through a recent capital restructuring. After BAY, the parent bank, becomes a foreign-majority owned commercial bank, AYCAL's status has consequently changed to a foreign company. Under the Foreign Business Act, AYCAL is required to maintain sufficient capital in order to keep its debt equal to or no more than 7 times of its capital. In June 2014, AYCAL increased new capital and had allocated Bt20,900 million of retained earnings in terms of stock dividends to existing shareholders. Its paid-up capital increased to Bt25,545 million from Bt1,045 million, and its shareholders' equity rose to Bt28,367 million from Bt24,092 million as of March 2014. The ratio of total shareholders’ equity to total assets, therefore, rose from 11.38% as of March 2014 to 14.53% as of June 2014 and 16.27% as of September 2014. At the same time, the ratio of total debts to total shareholders’ equity also improved significantly from 7.6 times as of March 2014 to 5.7 times in June 2014. As of September 2014, the ratio further improved to 5 times.
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