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 the holding company of the TISCO Group, its control of TISCO Bank PLC (TISCOB) through a 99.99% ownership stake, and the stable stream of dividends it receives from TISCOB. The rating is based on TISCOB’s strong market position in the auto hire-purchase segment. The rating takes into consideration its diverse sources of income and its strengthened capital base. These strengths, however, are constrained by TISCO’s small market shares in loans and deposits, its limited network, poorer loan quality, and its reliance on wholesale funding. The rating is also constrained by the current slowdown in the Thai economy and the sluggishness of domestic auto sales, which may affect TISCO’s competitiveness, loan quality, and profitability.
TISCO’s company rating is one notch lower than the company rating of its core bank subsidiary, TISCOB (“A”). 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 barriers surrounding the payment of the dividends.
The “stable” outlook reflects the expectation that TISCO will sustain its strong competitive position in auto hire-purchase lending and maintain a strong base of capital funds. The rating could be downgraded if TISCO’s profitability weakens substantially, caused by a drop in the quality of its loan portfolio. In contrast, any credit upside is unlikely in the near term due to the limited prospects for the hire-purchase segment and the weak economy.
TISCO was set up as the parent company of a group of affiliated companies, in place of TISCOB, in 2008. At the end of 2015, TISCO was ranked 10th among all 19 Thai commercial banks based on consolidated asset size, with a 2.1% market share in loans and a 1.4% share in deposits. TISCO has maintained its strong market position in auto hire-purchase lending. TISCO was the fourth-largest of 16 auto loan providers in TRIS Rating’s database, with approximately 10% market share as of December 2014. TISCO’s major revenue source is TISCOB. TISCOB contributes the largest portion of TISCO’s total revenue, over 80% of total interest income plus fee-based income. The remaining portion of TISCO’s revenue is contributed by other subsidiaries and affiliates like TISCO Asset Management Co., Ltd. (TISCOASSET), TISCO Securities Co., Ltd. (TSC), and Hi-Way Co., Ltd. (Hi-Way).
On a consolidated basis as of December 2015, TISCO’s loan portfolio comprises retail loans (72% of total loans), followed by corporate loans (18%), small- and medium-sized enterprise loans (SME loans, 8%), and other loans (2%). Since 2014, TISCO’s loan portfolio has contracted because of a slowing economy and sluggish auto sales. At the end of 2015, TISCO’s loans and receivables amounted to Bt238.8 billion, down by 9.3% year-on-year (y-o-y).
TISCO’s loan quality has weakened, as reflected by an increase in new non-performing loans (NPL). NPLs have increased continually, while the cushion of surplus reserves for loan losses declined sharply. In 2015, TISCO’s NPLs formation rate increased substantially because one large corporate borrower became an NPL. As of December 2015, NPLs rose to Bt7.7 billion, and the NPL ratio (NPLs as a percentage of total loans) climbed to 3.22%. TISCO’s NPL coverage ratio (loan loss reserves as a percentage of NPLs) dropped to 72%, far below the industry average as of December 2015.
In 2015, TISCO registered a net profit of Bt4.3 billion, with return on average assets (ROAA) and return on average equity (ROAE) of 1.4% and 15.8%, respectively. TISCO’s ratios were above the industry averages. TISCO’s interest spread improved as a result of a drop in its cost of funds. TISCO’s funding costs, however, remain higher than the industry average. TISCO’s credit costs continued to rise, following the increase in new NPLs. Nonetheless, TISCO’s operating cost controls mitigated some of the negative effects from the higher funding costs and credit costs.
TISCO’s regulatory capital base has strengthened lately and is adequate to fund its loan growth plans over the next few years. As of December 2015, on a consolidated basis, TISCO reported a Tier 1 ratio and a total capital ratio (BIS ratio) of 12.71% and 16.48%, respectively, above the minimum requirements set by the Bank of Thailand (BOT).
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