TRIS Rating has assigned the rating of “A-” to the proposed issues of up to Bt1,500 million in senior unsecured debentures of Ngern Tid Lor Co., Ltd. (NTL), formerly known as CFG Services Co., Ltd. (CFGS). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of NTL at “A-”. The outlook remains “stable”. The ratings reflect NTL’s strong brand name “Srisawad Ngern Tid Lor” in secured personal loans and brand name recognition among its target customers. The ratings also reflect its strong risk management systems, nationwide branch network, and diversified customer base. The ratings of NTL are enhanced from its stand-alone rating to reflect the business and financial support, as a wholly-owned subsidiary, from its parent bank, Bank of Ayudhya PLC (BAY). However, its target group of customer also constrains the ratings, as this group of customers is sensitive to changes in the economic conditions. In addition, NTL needs time to demonstrate ability to handle its sizable loan portfolio.
The “stable” outlook is based on TRIS Rating’s expectation that NTL will be able to maintain its market position and continuously deliver satisfactory performance. Loan quality is expected to be controlled at an acceptable level. Support from the parent bank will continue.
The rating or outlook upside is the case that NTL proves the consistent strength in business track record while continuously delivering strong financial performance. The improvement in business profile is judged by the company’s ability to control credit cost amidst a weak economy and improve its competitive position in the consumer finance industry. Higher strategic importance of NTL to its parent bank is also a credit upside for the ratings. The ratings or outlook could be revised downward should there be any factors which would significantly deteriorate NTL’s asset quality, competitive position, and support from the parent bank.
NTL was established in 2006 by AIG Consumer Finance Group Inc. (AIGCFG) to purchase the rights on brand name of “Srisawad Ngern Tid Lor” from Srisawad International (1991) Co., Ltd. (SI). NTL also acquired all of SI’s assets, excluding loan receivables. In 2009, BAY acquired all of NTL’s shares from AIGCFG. NTL was originally titled as CFGS and was renamed NTL in October 2015. NTL is currently classified as a non-solo consolidated subsidiary, part of BAY’s financial conglomerate. After becoming a subsidiary of BAY, NTL has the ability to leverage funding from BAY to finance expansion in loan portfolio and have benefits on other aspects from a strong tie with BAY, including referral channel and core loan system. NTL has continuously developed and implemented its operating systems, including risk management and information technology (IT) systems. The company has been closely supervised and monitored by its parent bank and is indirectly controlled by the Bank of Thailand (BOT) through the parent bank.
NTL provides lending services for low-income customers, who have little or no formal income documentation, by using their vehicles, such as cars, pick-up trucks, commercial trucks, motorcycles, and tractors as collaterals. The company currently uses the brand name “Srisawad Ngern Tid Lor”, which is well-known among its target customers and all the companies offering financial products using vehicles to secure personal loans. Quick turn-around time is a key strategy to attract customers. The risk inherent in its base of target customers is partly mitigated by the small sizes of loans that NTL makes, plus its nationwide customer base. In addition, the risk is controlled by NTL’s stringent underwriting policies and loan monitoring process. The company has expanded its customer base to include small- and medium-sized enterprises (SMEs). NTL can gain economies of scale by making larger loans to the SMEs.
There is high demand for financial services from financially underserved clients. In addition, NTL can draw on funding support from its parent bank. As a result, NTL has been able to grow its loan portfolio strongly during the past years. The loan portfolio grew from Bt1,673 million in 2009 to Bt16,876 million in 2015, or a compound annual growth rate (CAGR) of 47%. The loan portfolio grew continuously to Bt17,842 million at the end of March 2016 (unaudited). NTL’s operating systems are considered strong and are adequate to support its businesses. However, NTL needs time to demonstrate its ability to handle its sizable loan portfolio and deliver impressive performance with acceptable loan quality.
The ratio of non-performing loans (or NPLs, loans with more than 90 days past due) to total loans fell from 1.8% at the end of 2011, the year of widespread flooding, to 0.6% at the end of 2012. However, the ratio climbed steadily to 0.7% at the end of 2013, 0.9% at the end of 2014 and 1.3% at the end 2015. Despite the rise, NTL’s NPL ratio was relatively low, particularly in light of NTL’s customers who typically carry high credit risk profiles. At the end of March 2016, the NPL ratio dropped slightly to 1.2%. NTL has maintained a conservative provisioning policy by setting the ratio of the allowance for loan losses against total loans of at least 6.25%. This percentage is large enough to cover the current level of NPLs.
NTL’s interest yield has been affected by direct competition from peers, change in composition of pledged assets, and the expansion of the loan portfolio to include customers with stronger credit profiles. The interest yield fell continuously from 28.2% in 2011 to 19.9% in 2015 while the funding costs ranged from 3.9%-5% over the same period. As a result, the interest spread dropped from 23.8% in 2011 to 15.9% in 2015. If NTL can control its quality of loan portfolio, interest spread will be high enough to deliver outstanding financial performance. Net income rose continuously from Bt147 million in 2011 to Bt632 million in 2015. The return on average assets (ROAA) rose from 3.5% in 2011 to 4.2% in 2012 and 4.7% in 2013. The ROAA dropped slightly to 4.3% in 2014 and 4.1% in 2015. Based on the unaudited financial statements, net income for the first quarter of 2016 was Bt233 million, up 21.7% from the same period in 2015. The ROAA for the same period also increased to 5.3% (annualized).
NTL has good asset-liability management, under the control of its parent bank. The company has financial flexibility from the support it receives from BAY. NTL is categorized as a subsidiary in the non-solo consolidation group. Firms in this group face a limitation in the financial support they can receive from a parent bank. Despite this limitation, the maximum limit on the credit facility that BAY is able to provide to NTL remains large enough to support NTL’s expansion efforts. The company has leveraged the financial support it receives from BAY since it became a subsidiary.
After a recapitalization in 2009, NTL’s capital base has gradually increased due to its solid performance. However, the improvement was not enough to support the substantial growth in its loan portfolio. As a result, the ratio of shareholders’ equity to total assets slipped from 29.1% in 2009 to 15% at the end of 2013. NTL has strengthened its capital base through recent recapitalizations. After BAY, the parent bank, becomes a foreign-majority owned commercial bank, NTL's status has consequently changed to a foreign company. Under the Foreign Business Act, NTL is required to maintain sufficient paid-up capital in order to keep its debt equal to or no more than 7 times of its paid-up capital. In May 2014, the company increased its paid-up capital by Bt1,800 million. The recapitalization strengthened the ratio of shareholders’ equity to total assets to 24.9% at the end of June 2014. The ratio remained steadily high at 23.6% at the end of 2014. In the third quarter of 2015, NTL additionally increased its paid-up capital by Bt300 million. The ratio of shareholders’ equity to total assets was 22.7% at the end of 2015 and 23% at the end of March 2016. The continued financial support from BAY helps mitigate concerns over any deterioration in NTL’s capital ratio.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2016, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating-information/rating-criteria.html.