Bangkok--6 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned KTB Leasing Company Limited (KTBL) National Long- and Short-Term Ratings of ‘AA-(tha)’ and ‘F1+(tha)’, respectively. The Outlook is Stable.
The ratings reflect a high support probability from its shareholder Krung Thai Bank Public Company Limited (KTB; ‘AA+(tha)’/Stable), whose own rating is based on Fitch’s expectation of a high potential of extraordinary state support, if needed. Given the modest size of KTBL relative to KTB, Fitch believes that in times of financial distress any state support for KTB may be permitted to flow through to KTBL.
KTBL’s National Long-Term rating is notched two levels down from KTB’s National Long-Term rating, reflecting the former’s strategic importance to KTB, while taking into account the regulatory limit under the consolidated supervision rule by the Bank of Thailand (BoT). Under this rule, KTB faces a cap on its aggregate exposure, at 25% of its capital funds, to KTBL and other finance business entities deemed to be outside the consolidation group. The exposure includes lending, equity investment, contingent liabilities, and transaction similar to lending. KTBL does not qualify as part of KTB’s ‘solo consolidation’ group due to its operating lease business. However, the BoT has the authority to waive this limit on a case-by-case basis.
Due to KTBL’s rapid asset growth in H212, driven by the strong recovery of autos for commercial use and domestic car sales, borrowings from KTB have significantly increased. As a result, the available limit from KTB has tightened for KTBL’s growth target in 2013, leading to plans by KTBL to diversify its funding. KTBL has to date relied almost solely on parent loans for funding.
KTBL is the only wholly-owned subsidiary of KTB involved in the leasing business, including auto hire purchase, financial lease, operating lease, and consumer product hire purchase. Although KTBL is controlled through majority board representation by KTB, Fitch views KTBL’s integration with KTB at the operational level as limited. KTBL operates independently and linkages with KTB are mostly limited to cross-selling, parent loans for funding and the sharing of the same brand name. At end-Q312 KTBL’s assets and net profit were 1.3% and 1% of KTB’s total, respectively.
Given the support-driven rating of KTBL, any changes in KTB’s National Long-Term Rating will affect KTBL’s National Long-Term Rating. A significant reduction in KTB’s ownership of KTBL would have a negative impact on the latter’s rating. This is unlikely to occur as KTB has no plans to reduce its stake in KTBL. On the other hand, closer management by and an increase in operational integration with KTB may benefit the ratings. Any regulatory changes or a restructuring of KTBL’s business leading to the operating lease business being spun off, hence allowing KTB to provide unlimited financial support to KTBL could also be positive for KTBL’s ratings.
KTBL was established in 2005 and is 99.99%-owned by KTB. Since KTB is a state enterprise as it is 55%-owned by the Financial Institution Development Fund, KTBL is also a state enterprise. KTBL’s portfolio is split between corporate and retail customers at 55%-45%. While it is a small player in the retail auto hire purchase with a market share of 1.5% as of end-2011, KTBL is a large player in the corporate lease market.
KTB is Thailand’s second-largest commercial bank by consolidated assets, with an 18% market share as of end-Q312. KTB’s support driven rating is based on the state’s majority stake in, close control over, and proven record of support to KTB, on top of the bank’s systemic importance to the domestic financial system and economy.
Contact:
Primary Analyst
Chutimas Sivamard, CFA
Director
+662 655 4758
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Piyamas Chaihetphon, CFA, CPA
Associate Director
+662 655 4749
Committee Chairperson
Jonathan Cornish
Managing Director
+852 2263 9901