TRIS Rating Co., Ltd. has assigned “BBB+” ratings for the proposed issue of up to Bt10,000 million in senior debentures of Krungthai Card PLC (KTC). At the same time, TRIS Rating has affirmed the company rating and the ratings of KTC’s current senior debentures at “BBB+”. The outlook remains “stable”. The proceeds from the proposed debentures will mostly be used for refinancing. The ratings reflect KTC’s capable management team and efficient operating system, which help sustain its solid market position in the credit card business. The ratings also take into consideration the strong support from Krungthai Bank PLC (KTB), which held a 49.45% stake in KTC as of 2 April 2009. The ratings are limited by intense competition, an unfavorable operating environment, and regulatory risk, which might affect future expansion, asset quality, and profitability.
The “stable” outlook is based on expectation that KTC will continue to receive both financial and business support from KTB. The outlook also reflects KTC’s current ability to access the capital market, fulfil its funding plan by securing more credit lines from other non-affiliated financial institutions, and continue to maintain a stringent credit policy. However, should financial performance be significantly weaker than expected, the ratings may be revised.
TRIS Rating reported that KTC’s short-term liquidity gradually improved as the company was able to issue long-term debentures totalling Bt4,680 million in May and June 2009. As of June 2009, KTC had Bt15,130 million in available credit lines from KTB and Bt2,510 million from other financial institutions. The level of available credit has substantially improved from 4 May 2009, when the company had only Bt3,200 million in available credit line from KTB and Bt2,960 million from other financial institutions. However, financial support from KTB is limited by regulatory lending limits. Regulations cap lending to KTB’s consolidated companies. Any future allocation of credit facilities to consolidated companies in the KTB Group will be subjected to review and approval by KTB.
KTC continues to maintain a strong market position in credit cards. In terms of the number of cards issued, KTC had 12.4% market share as of March 2009, slightly down from 12.7% as of December 2008. However, the management has become more conservative when managing KTC’s balance sheet. The conservative policy is suitable under unfavourable external conditions and uncertain funding sources from capital markets. KTC’s loan portfolio is expected to be flat or decline in 2009. Maintaining good asset quality is a major challenge during economic slowdown. To mitigate deterioration in asset quality, KTC’s management team implemented several measures in 2008 including more stringent credit criteria and collection policy, and planned to increase the credit card spending from high-end customers.
As of March 2009, KTC had total loan receivables of Bt49,232 million, a 2.7% decrease from Bt50,587 million in 2008. Total receivables comprised credit card loans (72%), personal loans (25%), self-employed loans (2%), and circle loans (1%). KTC reported net profit of Bt101 million during the first quarter of 2009, more than 50% decrease from Bt217 million of net profit during the same period in 2008. This drop was mainly due to an increase in loan loss provisions and the extra income from VISA Inc. totaling Bt114 million received in 2008. Provisions rose to Bt1,068 million in 2009 from Bt742 million in 2008. Excluding the extra income, profitability ratios slightly declined. Return on average assets (ROAA) and return on average equity (ROAE) were 0.2% and 1.6% in for the first three months of 2009, compared with 0.3% and 2.3% for the same period in 2008.
The delinquency rate remained flat but the net charge-off rate kept increasing. As of March 2009, KTC’s overall delinquency rate (loans with more than 90 days past due) was 4.1%, slightly down from 4.2% in December 2008. However, the net charge-off rate increased from 5.5% in 2007 to 6.3% in 2008 and 1.9% (non-annualized) for the first three months of 2009. KTC’s ratio of total allowances for possible loan losses to total loans continued to increase, rising from 3.84% in 2007 to 4.26% as of March 2009.
The increase in provision expense was the result of deteriorations in asset quality and more stringent provisioning criteria for the personal loan portfolio. Since the last quarter of 2007, provisions for personal loans have been based on three years of historical data of actual losses plus future factors that reflect the forecasted economic environment. This new provisioning method is much different than the former way which was simply 2% of outstanding loans with less than 180 days past due, said TRIS Rating. -- End
Company Rating: Affirmed at BBB+ Issue Rating: KTC09OA: Bt2,000 million senior debentures due 2009 Affirmed at BBB+ KTC102A: Bt3,000 million senior debentures due 2010 Affirmed at BBB+ KTC104A: Bt2,500 million senior debentures due 2010 Affirmed at BBB+ KTC106A: Bt1,200 million senior debentures due 2010 Affirmed at BBB+ KTC113A: Bt4,000 million senior debentures due 2011 Affirmed at BBB+ KTC115A: Bt680 million senior debentures due 2011 Affirmed at BBB+ KTC126A:Bt4,000 million senior debentures due 2012 Affirmed at BBB+ Up to Bt320 million senior debentures due within 2012 BBB+ Up to Bt10,000 million senior debentures due within 2014 BBB+ Rating Outlook: Stable
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