Bangkok--31 Oct--TRIS Rating
TRIS Rating has affirmed the company and senior unsecured debenture ratings of Ratchthani Leasing PLC (THANI) at “BBB+” with “stable” outlook. The ratings reflect the extensive experience of the management team in the used car financing business, plus the continuous improvements in THANI’s operating processes and risk management systems. The ratings also reflect THANI’s improved financial performance and stronger business profile, because it receives business and financial supports from its major shareholder, Thanachart Bank PLC (TBANK). The ratings of THANI are enhanced from its stand-alone rating because the company is currently classified as a subsidiary of TBANK, under the consolidated supervision regulations issued by the Bank of Thailand (BOT). However, the ratings are mitigated by concerns over intense competition and the quality of THANI’s loan portfolio, now that THANI has decided to focus on making hire-purchase loans for commercial trucks. This type of loan is more sensitive to adverse changes in the present economic condition. The “stable” outlook reflects the expectation that THANI’s experienced management team, improving operating efficiency, and support from its parent company will enable THANI to expand its loan portfolio in the market segments it has targeted. Loan quality is expected to be controlled and maintained at an acceptable level. In addition, THANI’s profitability is expected to remain at an acceptable level. The support THANI receives from its parent company is expected to continue, especially the provision of credit facilities.
THANI has been a subsidiary of TBANK since 2010, after Siam City Bank PLC (SCIB) and TBANK merged and undertook a recapitalization. TBANK now includes THANI as one of its subsidiaries on a non-solo consolidation basis, consistent with the BOT’s consolidated supervision regulations. Although THANI’s main line of business overlaps with TBANK’s auto loan business, the two companies target different products and market segments. TBANK intends to have THANI focus on market segments which TBANK has not yet penetrated. TBANK has helped THANI develop its underwriting and collection processes to improve operational efficiency. THANI has implemented a number of risk management policies to comply with the standards required by TBANK. Lastly, THANI has changed its information technology and accounting systems for hire purchase lending. It now uses TBANK’s system. THANI has been closely supervised by its parent bank and indirectly supervised by the BOT through the parent bank.
THANI has more financial flexibility after becoming TBANK’s subsidiary. THANI can receive a greater level of business and financial supports from its parent bank. The supports it receives have enhanced THANI’s competiveness and boosted its efforts to expand. THANI has been able to continuously improve its market position, as shown by the continued growth in its loan portfolio. Outstanding loans grew at a compound annual growth rate (CAGR) of 42% over the past three years. Outstanding loans rose from Bt9,577 million in 2010 to Bt27,421 million in 2013. However, the adverse economy this year cut the growth rate. The value of the portfolio increased to Bt28,418 million at the end of June 2014, a 4.1% rise compared with the value of the loan portfolio in 2013.
THANI has been focusing its efforts on the commercial truck segment since 2006. Loans made to this segment constituted 68% of the company’s total hire purchase loan portfolio at the end of June 2014. Commercial truck hire-purchase lending is quite sensitive to adverse changes in economic conditions. THANI compensates for the increased risk in this new customer segment by charging higher interest rates, requiring high down payments, and calling for post-dated payment cheques.
THANI’s ratio of non-performing loans (NPLs) to total loans fell almost every year from 2008 through 2012. The ratio dropped from 4.9% in 2008 to 2.3% as of December 2012. However, the ratio increased to 3.6% in 2013, and 4.4% at the end of June 2014 due to the current economic slowdown. THANI faces two challenges during the current economic slowdown: maintain its profitability and control its loan quality at acceptable levels.
THANI’s profitability improved significantly in 2012 and 2013. Net profit increased 133% to Bt477 million in 2012 and increased 58% to Bt754 million in 2013, when compared with the net profit of the prior year. The return on average assets (ROAA) was 3.2% in 2013, improving from 2.8% in 2012 and 1.9% in 2011. The improvement in profitability was due to an aggressive portfolio expansion, a lower cost of funds, plus the economies of scale THANI realized in terms of operating costs. THANI’s operating efficiency also improved, due to economies of scale and supports from TBANK. The ratio of operating expenses to total income halved, tumbling to 13.3% in 2012 from 26.7% in 2009. The ratio has continued to decrease, sliding to 10.7% in 2013. THANI reported a net profit of Bt368 million for the first half of 2014, down 7.9% compared with the Bt397 million it earned in the same period last year. Net profit slipped because NPLs increased in the first half of 2014 and THANI had to set aside a huge loan loss provision.
Intensifying competition has constrained interest yields. However, THANI now has a lower-cost source of funds because it can secure funding from its parent bank. THANI can also secure lower-cost funds from the capital market, through the issuance of debentures and bills of exchange (B/Es). The lower-cost sources of funds have helped THANI improve its interest spread to 4.3% in 2013, compared with 3.3% in 2012 and 2.9% in 2011. As an affiliate of TBANK, THANI now has adequate financial flexibility. At the end of June 2014, THANI had a few borrowings from TBANK. THANI uses secured funding sources from TBANK to meet its liquidity needs.
THANI’s capital base has deteriorated due to its aggressive, debt-funded expansion of its loan portfolio. The deterioration came despite improved operating performance since 2009 and a rise in paid-up from two recent recapitalizations. The ratio of shareholders’ equity to total assets sagged from 31.4% in 2007 to 13.4% in 2010 and 12.2% at the end of September 2011. A recapitalization in November 2011 strengthened the ratio to 17.2% at the end of 2011. THANI used more debt financing to fund the significant growth of its loan portfolio in 2012 and 2013. As a result, the ratio of shareholders’ equity to total assets dropped to 13.1% at the end of 2012. THANI paid a stock dividend in 2013, in an effort to increase its equity capital base. However, the stock dividend was not enough to maintain the ratio of shareholders’ equity to total assets. The ratio dropped to 11.8% at the end of 2013 due to aggressive growth in the loan portfolio during the same period. The ratio increased to 12.6% at the end of June 2014 because the loan grew at a slower rate.
Ratchthani Leasing PLC (THANI)
Company Rating: BBB+
Issue Ratings:
THANI154A: Bt1,500 million senior unsecured debentures due 2015 BBB+
THANI164A: Bt2,500 million senior unsecured debentures due 2016 BBB+
THANI16NA: Bt3,000 million senior unsecured debentures due 2016 BBB+
THANI176A: Bt2,000 million senior unsecured debentures due 2017 BBB+
THANI17OA: Bt3,000 million senior unsecured debentures due 2017 BBB+
THANI185A: Bt2,000 million senior unsecured debentures due 2018 BBB+
Rating Outlook: Stable