TRIS Rating assigns the company rating to Srisawad Finance PLC (BFIT) at “BBB”. The rating reflects BFIT’s status as a regulated non-bank financial institution. The strong growth prospects and improved profitability underpin the company’s rating. The rating also reflects adequate liquidity and greater financial flexibility. BFIT can accept deposits while many competitors cannot. This gives BFIT a lower cost of funds.
However, the intensifying competition and high credit risk constrain the rating. BFIT’s target customers are highly sensitive to changes in economic conditions. The company needs time to prove it can expand the loan portfolio, maintain the quality of the loans, and deliver satisfactory financial performance.
KEY RATING CONSIDERATIONS
Profitability improves
BFIT’s profitability has improved notably after Srisawad Corporation PLC (SAWAD) bought a major stake in BFIT. The company became part of SAWAD Group as a result. After the acquisition, SAWAD underwrites loans, but certain of them are booked by BFIT.
BFIT’s loan yield and profitability improved significantly after the restructuring. The loan yield climbed to 9.4% in 2017 and 16.4% in the first three months of 2018 (annualized) from 6.8% in 2016. Profits rose as a result. Net income rose to Bt235 million in 2017, 82.5% higher year-on-year. For the first three months of 2018, net income increased to Bt107 million, up 265.2% from the same period of 2017. Return on average assets (ROAA) improved to 2.8% in 2017, up from 2.4% in 2016. ROAA climbed to 3.5% (annualized) in the first three months of 2018.
Leveraging off of SAWAD’s nationwide branch network
BFIT makes secured personal loans originated using SAWAD’s branch network. The extensive network benefits SAWAD and BFIT because it is easier to reach the target customers. SAWAD has experienced loan underwriting staff to support BFIT. BFIT’s loan portfolio soared to Bt9,372 million at the end of 2017 and Bt11,616 million at the end of March 2018, from Bt1,904 million at the end of 2016.
Nearly all of the company’s outstanding loans (87%) are secured personal loans backed by vehicles and property. The rest are loans originally underwritten by BFIT long before the acquisition. Personal loans backed by provident funds held by private employees constitute 10.0% of the portfolio and corporate loans make up the rest (3.0%).
Adequate liquidity and financial flexibility
BFIT has had a greater reliance on long-term funding sources since 2017, such as long-term deposits and borrowings from SAWAD. As of March 2018, the company’s outstanding long-term deposits were Bt1,213 million and long-term borrowings stood at Bt4,506 million.
The mix of funding sources has changed significantly. Short-term deposits used to be BFIT’s sole source of fund three years ago. Short-term deposits decreased to 57.0% of total liabilities at the end of 2017 and stood at 45.0% at the end of March 2018.
BFIT’s financial flexibility is stronger than peers. As a finance company, BFIT can accept deposits. The acquisition gave BFIT additional financial flexibility. Cash flow is increasing as the size of the loan portfolio grows. BFIT can also rely on credit facility from SAWAD if needed.
Unproven improvement in loan quality
A recent improvement in BFIT’s asset quality appears unsustainable. The ratio of non-performing loans (or NPLs, loans more than 90 days past due) to total loans dropped significantly after the company started making more secured personal loans. The ratio decreased to 2.8% at the end of 2017 from 17.8% at the end of 2016. However, the ratio rose to 3.3% at the end of March 2018. BFIT’s NPLs are mostly corporate loans. BFIT has been winding down corporate lending over the last five years. BFIT’s rating is based on our expectation that the company will manage its sizeable loan portfolio and keep loan quality at an acceptable level.
RATING OUTLOOK
The “stable” outlook is based on the expectation that BFIT will expand the loan portfolio, improve profitability, and maintain adequate liquidity. The outlook also assumes BFIT’s loan quality will be controlled at an acceptable level.
RATING SENSITIVITIES
The rating and/or outlook upside case could arise if the loan portfolio continues to expand, profitability and leverage improve, and asset quality remains at acceptable level. In contrast, the downward rating and/or outlook could occur should the company’s asset quality and its competitive position deteriorate significantly.
COMPANY OVERVIEW
BFIT was established in 1972 as a finance company initially named Bangkok First Investment & Trust PLC. BFIT holds four finance licenses: finance for commerce, finance for development, finance for deposition and consumption, and finance for housing. The company also serves as a representative and/or trustee for debenture holders.
BFIT offers corporate loans. In 2017, SAWAD became BFIT’s major shareholder, by buying a 36.35% stake. BFIT was renamed Srisawad Finance PLC in June 2017 and entered a new business: offering secured personal loans backed by customers’ vehicles and property under loan agreements. In July 2018, SAWAD’s holding increased to 45.34% of BFIT’s paid-up capital of Bt1,102 million.
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