Bangkok--Dec 22--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) Limited has affirmed AEON Thana Sinsap (Thailand)’s (“AEONTS”) National Long- and Short-term ratings at ‘A-(tha)’ (A minus(tha)) and ‘F2(tha)’ respectively, with a Stable Outlook. The ratings of AEONTS reflect its niche market position, strong earnings growth and profitability in retail financing in Thailand, product diversification, solid capital position and support from a strong parent company. They also take into account concerns on asset quality deterioration due to AEONTS’ high growth strategy and the volatility of consumer finance in the low income segment.
AEONTS’ loan portfolio has expanded significantly over the past four years, due to strong growth in its core hire purchase, credit card and personal loan businesses. AEONTS reported net income of THB623 million in the financial year ending in February 2004 (“FY03”), a significant improvement from the THB464m recorded the prior year on the back of strong growth across its business, in particular credit cards. Although AEONTS’ portfolio shrank slightly in FY03 mainly as a result of falling consumer confidence caused by severe acute respiratory syndrome (“SARS”) and the war in Iraq, growth was restored in the first half of the financial year ending in August 2004 (“1H04”) with AEONTS reporting a 23% year-to-date rise in total receivables.
Delinquencies at end-February 2004 amounted to 9.2% of receivables, an increase from 6.9% the prior year. Stripping out the effects of the transfer of assets for securitisation, delinquencies stood at 8% of receivables. While rising delinquency is a concern, AEONTS’ tighter credit control and collections in late-2003 appear to have helped slow down asset quality deterioration. The delinquency rate declined to 4.6% at end-August 2004. One of the keys to AEONTS’ strong performance to date has been disciplined management, particularly of approvals and collections. A sustained rise in the delinquency rate beyond the current level could result in a lowering of AEONTS’ credit rating. Given the very high growth, particularly in the credit card portfolio, there is a risk of rising delinquency and loss levels, which could adversely affect profitability. Increased lending on large ticket items such as motorcycles also poses risks to asset quality in the medium-term.
The new credit card service licensing and regulatory controls that took effect in 2003 have not had a significant impact on AEONTS, although the interest rate cap and increased competition have affected its very high margins. Additional regulatory controls on credit card services, effective from April 2004, similarly appear to have had minimal impact, although the growth rate may be impacted.
AEONTS securitised THB2 billion of its hire purchase receivables in February 2004. The impact of the securitisation on profitability and asset quality should generally be neutral and positive for liquidity and capital. Once securitisation in Thailand has become more established, this should offer funding cost and diversification benefits which would provide AEONTS with more room for growth. Total equity at end-August 2004 stood at THB2.2bn. AEONTS’ equity to net receivables ratio stood at 14% at end-August 2004. While internal capital generation is currently strong, Fitch Ratings believes that AEONTS may look to a mix of securitisation and capital raising to maintain high growth.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Contact: Chaiyapat Paitoon,
Vincent Milton, Bangkok +662 655 4762/4759;
David Marshall, Hong Kong +852 2263 9963. End.