TRIS Rating has viewed that the credit ratings of TISCO BANK PLC (TISCOB) are not affected by the recent deterioration in a loan made to Sahaviriya Steel Industries Group (SSI Group). The deterioration forced TISCOB to set additional provisions for loan losses. TISCOB recently reclassified the debts of SSI Group, which is a large debtor of TISCOB, as non-performing loans (NPLs). As a result, TISCOB set additional provisions for doubtful debts worth approximately Bt1.5 billion in the third quarter of 2015. TISCOB set some provisions in the past for its loans to SSI Group. Although the increased provisions will reduce TISCOB’s profits for 2015 below TRIS Rating’s expectation, the drop in profits will occur only this year. In addition, TISCOB’s base of capital funds and its competitive position in auto hire-purchase lending remain strong. Its loan quality is still better than the industry average, despite some recent deterioration.
SSI Group, comprising Sahaviriya Steel Industries PLC (SSI) and its subsidiary Sahaviriya Steel Industries UK Ltd. (SSI UK), has borrowed around Bt50 billion from three Thai commercial banks, including TISCOB. TISCOB lent SSI Group approximately Bt4.4 billion, or 1.8% of TISCOB’s total loans as of June 2015. In accordance with SSI Group’s restructuring plan, SSI UK recently announced the temporary shutdown of its large steel plant in the United Kingdom so as to restructure its operations and financial position. As a result, TISCOB must set additional provisions of around Bt1.5 billion, in accordance with the regulatory requirement set by the Bank of Thailand. The large provision will cut TISCOB’s profits for 2015 below TRIS Rating’s expectation. However, the provision will occur only in 2015, and it does not significantly affect TISCOB’s credit profile.
TISCOB’s market position in auto hire-purchase lending remains strong and its loan quality is still better than the industry average, despite some deterioration during the past few years. As of June 2015, the bank’s ratio of NPLs to total loans was 2.6%, below the industry average of 3.0%. Furthermore, TISCOB’s capital base was strengthened after it raised new capital funds during 2013-2014. At the end of June 2015, TISCOB reported a Tier 1 ratio and a total capital ratio (BIS ratio) of 13.13% and 17.54%, respectively. The additional provisions for the large NPLs at SSI Group are unlikely to have a material effect on TISCOB’s capital position. The bank’s regulatory capital base is adequate to fund its expansion efforts over the next few years.
TISCOB is a 99.99%-owned subsidiary of TISCO Financial Group PLC (TISCO). TISCO was ranked ninth among 17 Thai commercial banks, in terms of asset size, as of June 2015, with a 2.3% market share in loans and a 1.7% share in deposits. TISCOB, the core bank of TISCO, focuses on its niche market, auto hire-purchase lending. Auto loans comprised the largest portion (62%) of the bank’s loan portfolio, as of June 2015. At the end of 2014, TISCOB was the fourth-largest of 16 auto loan providers in TRIS Rating’s database, with approximately 11% market share.
TRIS Rating currently assigns TISCOB an “A” rating for the company and for its senior unsecured debentures, a rating of “A-” for its subordinated debentures, and a rating of “BBB+” for its hybrid Tier 2 capital security, with a “stable” outlook.