Thai Rating and Information Services Co., Ltd. (TRIS) announced that it has affirmed a "A+" company rating to Industrial Finance Corporation of Thailand (IFCT). The rating reflects IFCT's role as the government-sponsored development finance institution and its success in strengthening its capital base by issuing hybrid debt-capital. These strengths are partially offset by its asset quality, the slowing economy, intensifying competition in the banking industry and IFCT's rather weak financial performance when compared to the banking industry.
TRIS reported that IFCT was constituted by an act of parliament, and the government is its largest shareholder. Although IFCT is not a state enterprise, the Ministry of Finance (MOF), which holds directly or indirectly almost 30% of its shares, occasionally guarantees its borrowings and always acknowledges IFCT's strategic importance in implementing various MOF policies. As a development financial institution, IFCT is a tool the government uses formally and informally to implement development policies. Currently, IFCT plays an important role in lending to small and medium enterprises (SMEs). In 2000, the Bank of Thailand (BOT) channeled Bt9,000 million in loans to SMEs through IFCT, and IFCT provided an additional Bt6,000 million in loans to SMEs. This demonstrates one way IFCT supports efforts to stimulate economic recovery and implement government policy.
TRIS said that IFCT's non-performing loans decreased from Bt37,777 million or 27.8% of total loans in 1999 to Bt26,460 million or 17.8% of total loans in 2000. The reduction mainly came through loan restructuring. In 2000, IFCT successfully restructured loans worth Bt42,041 million; Bt6,985 million of this was restructuring performing loans and Bt35,056 million was restructuring non-performing loans. Total outstanding non-performing loans increased slightly to Bt28,414 million or 18.7% of total loans as of June 2001. This was higher than the 12.6% average for non-performing loans at commercial banks, mainly because of the slowing of debt restructuring, problems with re-entry non-performing loans and all state-owned banks transferring non-performing loans to their asset management companies. IFCT plans to transfer its non-performing loans to the Thai Asset Management Corporation (TAMC) in the near future. IFCT also successfully issued hybrid debt-capital worth Bt1,800 million in November 2000 to strengthen its capital base. This instrument qualifies as second tier capital.
IFCT's overall financial performance improved significantly over the past two years. IFCT reported net income of Bt47 million in the first half of 2001, an increase from net losses of Bt7,930 million in 1999 and Bt1,649 million in 2000. Although IFCT earned a negative spread between yields on average earning assets and average cost of funds, it was improving significantly from -1.7% in 1999 and 2000 to -0.3% in first-half 2001. Profitability should improve as management implements various actions, such as setting up policy for more debt restructuring, extending new loans to customers and prepaying high cost sources of funds. IFCT's return on average assets and return on average equity increased from -0.9% and -16.1% respectively in 2000 to 0.03% and 0.5% respectively in the first-half 2001. However, its overall financial performance is still rather weak when compared to the average of commercial banks.
The economy has shown signs of weakness since early 2001, and GDP growth for 2001 is expected to be only slightly more than 1 percent mainly because of a profound drop in exports. This will impact IFCT's loan expansion plans and its asset quality in the near future especially from clients who are exporters. Meanwhile, the banking industry still has excess liquidity, which leads to intensified competition. In the fragile economic climate, rising competition in the banking industry will affect IFCT's profitability, TRIS said.
Industrial Finance Corporation of Thailand (IFCT) Company Rating Affirmed at A+
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TRIS reported that IFCT was constituted by an act of parliament, and the government is its largest shareholder. Although IFCT is not a state enterprise, the Ministry of Finance (MOF), which holds directly or indirectly almost 30% of its shares, occasionally guarantees its borrowings and always acknowledges IFCT's strategic importance in implementing various MOF policies. As a development financial institution, IFCT is a tool the government uses formally and informally to implement development policies. Currently, IFCT plays an important role in lending to small and medium enterprises (SMEs). In 2000, the Bank of Thailand (BOT) channeled Bt9,000 million in loans to SMEs through IFCT, and IFCT provided an additional Bt6,000 million in loans to SMEs. This demonstrates one way IFCT supports efforts to stimulate economic recovery and implement government policy.
TRIS said that IFCT's non-performing loans decreased from Bt37,777 million or 27.8% of total loans in 1999 to Bt26,460 million or 17.8% of total loans in 2000. The reduction mainly came through loan restructuring. In 2000, IFCT successfully restructured loans worth Bt42,041 million; Bt6,985 million of this was restructuring performing loans and Bt35,056 million was restructuring non-performing loans. Total outstanding non-performing loans increased slightly to Bt28,414 million or 18.7% of total loans as of June 2001. This was higher than the 12.6% average for non-performing loans at commercial banks, mainly because of the slowing of debt restructuring, problems with re-entry non-performing loans and all state-owned banks transferring non-performing loans to their asset management companies. IFCT plans to transfer its non-performing loans to the Thai Asset Management Corporation (TAMC) in the near future. IFCT also successfully issued hybrid debt-capital worth Bt1,800 million in November 2000 to strengthen its capital base. This instrument qualifies as second tier capital.
IFCT's overall financial performance improved significantly over the past two years. IFCT reported net income of Bt47 million in the first half of 2001, an increase from net losses of Bt7,930 million in 1999 and Bt1,649 million in 2000. Although IFCT earned a negative spread between yields on average earning assets and average cost of funds, it was improving significantly from -1.7% in 1999 and 2000 to -0.3% in first-half 2001. Profitability should improve as management implements various actions, such as setting up policy for more debt restructuring, extending new loans to customers and prepaying high cost sources of funds. IFCT's return on average assets and return on average equity increased from -0.9% and -16.1% respectively in 2000 to 0.03% and 0.5% respectively in the first-half 2001. However, its overall financial performance is still rather weak when compared to the average of commercial banks.
The economy has shown signs of weakness since early 2001, and GDP growth for 2001 is expected to be only slightly more than 1 percent mainly because of a profound drop in exports. This will impact IFCT's loan expansion plans and its asset quality in the near future especially from clients who are exporters. Meanwhile, the banking industry still has excess liquidity, which leads to intensified competition. In the fragile economic climate, rising competition in the banking industry will affect IFCT's profitability, TRIS said.
Industrial Finance Corporation of Thailand (IFCT) Company Rating Affirmed at A+
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