TRIS Rating has affirmed the company rating of BSL Leasing Co., Ltd. (BSL) at “BBB” with “stable” outlook. The rating reflects the company’s experienced management team, acceptable risk management practices, and the good quality of its assets. The rating also incorporates the recent improvement in BSL’s performance and the financial support 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, which in turn exposes BSL to customer concentration risk because it relies on a few large customers. BSL has gradually lost its market position in equipment financing leases because Japanese lessors have become more active. BSL’s short-term growth prospects and profitability have been constrained by a weak economy and intense competition as well as low price for used cars.
The “stable” outlook is based on TRIS Rating’s expectation that BSL will 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 maintain its market position while controlling the asset quality and delivering the financial performance in line with TRIS Rating’s expectations.
The rating and/or outlook of BSL could be revised upward if BSL is one of BBL’s financial conglomerates under the consolidated supervision platform or if BSL is able to improve its market position better than expectation and if its financial performance could be able to strengthen its credit profile. In contrast, if BSL cannot maintain its market share or if its financial performance weakens because of a narrower interest spread or higher credit cost, BSL’s credit profile could be negatively impacted.
BSL was established in 1985 as a joint venture between Bangkok Bank (BBL), including companies owned by and affiliated with BBL, and Sumitomo Mitsui Banking Corporation (SMBC) in Japan. BSL was established to provide industrial equipment financing services and vehicle financing services under lease and hire purchase contracts. BSL entered the factoring business in 2004. Currently, BSL’s major shareholders are BBL, holding a 35.88% stake, the SMBC Group (40%), and JA Mitsui Leasing, Ltd. (10%). Both BBL and SMBC Group provide support to BSL in terms of credit facilities and some level of business referrals. In 2011, in terms of outstanding loans, BSL was ranked seventh among 10 equipment financing companies in TRIS Rating’s database, BSL’s market position dropped from the fourth ranking in 2010. BSL held on to seventh place in 2012 and 2013 even though its loan portfolio grew. The value of the loan portfolio increased continuously, rising from Bt3,249 million in 2010 to Bt5,269 million in 2013. The portfolio has continued rising, reaching Bt6,209 million in 2014. BSL’s business is concentrated, as it operates only in the Bangkok Metropolitan Area (BMA). Only the head office provides services. Larger financial institutions are typically more geographically diversified than BSL. BSL’s limited geographic coverage area obstructs its potential customers to Bangkok and the nearby provinces.
Net revenue (adjusted for net operating lease revenue) was Bt542 million in 2013. Net revenue increased to Bt606 million in 2014, as the loan portfolio grew. The company reported a net profit of Bt242 million in 2014, leaping 20.5% from the level in 2013. As a result, the return on average equity (ROAE) and the return on average assets (ROAA) were 16.49% and 2.81% in 2014, respectively, improving from 16.05% and 2.71% in the prior year. BSL’s financial performance improved in 2014 due to a wider interest spread and its cost control efforts. However, the current economic slowdown will pose a challenge as BSL strives to sustain or improve its financial performance.
BSL efficiently manages the residual risk of its leased assets. Through careful management, BSL has consistently generated substantial amounts of non-interest income. The prices of used cars have been affected by the government’s recent tax incentive scheme for first-time car buyers. BSL has been able to maintain its gains on the sale of the leased assets. Gains from the sale of previously-leased (residual) assets were Bt29 million in 2011, Bt24 million in 2012, and Bt19 million in 2013. In 2014, gains from the sale of expired assets decreased to Bt13 million, 46% less than the gains in 2013, due to dramatic drops in the prices of used cars.
BSL’s assets are of good quality. The ratio of non-performing loans (NPLs, loans overdue for more than three months) to total loans was 2% in 2012 and dropped to 0.7% in 2013. In 2014, the NPL ratio dropped further to 0.4% due to BSL’s stringent credit control measures. BSL’s NPL ratio is relatively low compared with its peers. However, during the current economic slowdown, TRIS Rating will closely monitor the company’s asset quality. If BSL’s asset quality deteriorates, its financial performance will be affected.
BSL and BBL must comply with a regulation that limits the amount of loans that a commercial bank may provide to a related company. A related company is one in which a bank holds more than 10% of the outstanding shares and less than 50% of the total shares. The total amount 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, since it cannot receive a large amount of funds from its major shareholder. In the past, BSL relied heavily on borrowings from BBL. Since 2009, BSL has diversified its funding sources to other financial institutions as well as the capital market. BSL began issuing bills of exchange (B/E) in 2010, senior unsecured debentures in 2011, and issued three tranches of Shogun bonds, valued US$60 million, during 2012-2014. As of December 2014, only 5.9% of BSL’s total debt of Bt6,750 million was borrowings from BBL, while 6.4% was from SMBC. BSL’s available credit lines are sufficient to finance its current short-term liquidity gap. The steady cash flows BSL receives from the customers’ monthly installments give the company additional liquidity. BSL has secured a credit line from BBL as a last resort, if additional liquidity is needed.
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