TRIS Rating Co., Ltd. has affirmed the company rating of BSL Leasing Co., Ltd. (BSL) at “BBB” with “stable” outlook. The rating reflects BSL’s experienced management team, acceptable credit and residual risk management practices, and financial support from the major shareholders. However, these supportive factors are partly offset by the lack of a branch network to service customers outside the central Bangkok area, relatively high leverage ratio compared with peers, and the limited financial support from Bangkok Bank PLC (BBL), which might limit business growth in the future. In addition, the lingering uncertainty in the operating environment might also limit the expansion of the loan portfolio and profitability in the future.
The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to continue obtaining financial support from major shareholders, retain existing major customers, and sustain recurring gains on sales of leased assets. The outlook also takes into account the expectation that the management team will be able to maintain good asset quality and keep funding rates in line with TRIS Rating’s expectations, despite the expected rise in interest rates during the next two to three years.
TRIS Rating reported that BSL was established in 1985 as a 50:50 joint venture between BBL and related companies (BBL Group) and Sumitomo Mitsui Banking Corporation (SMBC), Japan (formerly known as Mitsui Taiyo Kobe Bank), to provide leasing and hire purchase financing services. BSL entered the factoring business in 2004. A restructuring among some affiliated companies in the BBL Group in 2005 caused Bank Thai PLC (currently known as CIMB Thai PLC) to end up holding a 10% stake in BSL and the shareholding by BBL Group fell to 40%. However, in the first half 2009, BBL bought back the 10% stake from CIMB Thai. This repurchase indicates BBL’s intention to continue supporting BSL.
BSL was ranked sixth out of 12 equipment leasing companies in TRIS Rating’s database in 2008. BSL’s loan portfolio nearly doubled during the last five years, rising from Bt2,383 million in 2004 to Bt4,192 million in 2008. The portfolio stood at Bt4,094 million as of September 2009. BSL has no branch network, but only the head office to provide services. This limits its potential customers to Bangkok and the nearby areas, and causes the company to be less geographically diversified than large financial institutions.
TRIS Rating said, BSL revised its accounting policy for depreciation expenses in 2008. The depreciation method was changed from the “sum-of-the-years’ digits” (SYD) to the “straight line” method. The revised accounting method substantially increased net revenue but reduced gains from sale of leased assets in 2008. Net revenue (adjusted for net operating lease revenue) ranged from Bt100-Bt300 million during 2003-2007 before a substantial increase to Bt618 million in 2008. Net revenue stood at Bt399 million for the first nine months of 2009. The company delivered high returns on average equity (ROAE) of 26.79% in 2006, 28.19% in 2007, 48.71% in 2008 and 24.82% (non-annualized) for the first nine months of 2009. In addition to the new depreciation method, another factor driving the high returns was the relatively low funding cost. As of September 2009, more than 73% of total borrowings were short-term. Efficient residual risk management has consistently generated substantial amounts of non-interest income from gains on sale of leased assets. Except in 2008, these gains constituted 22%-23% of net revenue from 2005 through the first nine months of 2009, relatively high when compared with the interest income received from BSL’s core businesses. Gains from sale of residual assets were Bt72 million in 2006, Bt73 million in 2007, and Bt32 million in 2008 before increasing sharply to Bt83 million for the first nine months of 2009.
On 3 August 2008, the Bank of Thailand (BOT) released a series of revised regulations covering financial institutions. One regulation limits the amount of debt financing that a commercial bank may provide to a related company which that bank holds more than 10% of the total shares. The amount of debt must not exceed 5% of the lender’s capital funds or 25% of the borrower’s total liabilities, whichever is lower. The new regulation limits BSL’s future business expansion, together with financial liquidity and flexibility as the company has relied heavily on borrowings from BBL. However, the company diversified its funding sources to other financial institutions in 2009. As of September 2009, 20% and 26% of the company’s total liabilities of Bt3,418 million was provided by BBL and SMBC, respectively.
BSL has good asset quality, even though it targets small- and medium-sized enterprises (SMEs), which are often vulnerable to adverse changes in the economy. The ratio of non-performing loans (overdue for more than three months) to average loans is relatively low compared with other leasing companies rated by TRIS Rating. During the last five years, the ratio peaked at 3.47% in 2006, and gradually decreased to 2.90% in 2007 and 2.74% in 2008, before a slightly increase to 2.98% as of September 2009. It remains a challenge to maintain good asset quality despite an expanding loan portfolio, as the credit profiles of BSL’s customers are sensitive to the impact of any economic downturn, said TRIS Rating. -- End
Company Rating: Affirmed at BBB Rating Outlook: Stable
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