Bangkok--Jun 10--Fitch Ratings
Fitch Ratings (Thailand) has today revised the rating Outlook on AEON Thana Sinsap (Thailand) Plc (“AEONTS”) to Negative from Stable following an upward trend in delinquencies and a downward trend in credit card payment rates over the past three years. At the same time, the agency affirmed the ratings on AEONTS at National Long-term ‘A-(tha)’ (A minus(tha)) and National Short-term ‘F2(tha)’. Fitch said delinquencies may rise in 2005 due to rising costs of living, slower economic growth and higher consumer indebtedness. Further sustained rises in delinquencies will likely result in a downgrade. Stricter regulatory controls could also impact its growth and profitability. On the other hand, one of the keys to AEONTS’ strong performance to date has been disciplined management, particularly of approvals and collections, which could mitigate these risks. The revised Outlook does not affect the securitised portfolios.
AEONTS’ loan portfolio has expanded substantially in the past four years, due to aggressive growth in its core hire purchase, credit card and personal loan businesses. Outstanding receivables (adjusted for securitisation) grew by 39% in 2004 (fiscal year ending February 2005), although new sales were much higher. It reported net income of THB784 million in 2004, a significant improvement from the prior year THB623m mainly on the back of strong revenue growth from credit cards. However, as interest rates on credit cards remain capped at 18%, higher funding costs and rising delinquencies may impact profitability in 2005/6.
On a one-year lagged (average end-period receivables) basis, delinquencies (including write-offs) stood at 9% at end-February 2005. Due to the high payout rate and the short revolving nature of the portfolio, accumulated write-offs may slightly overstate the delinquency. Also due to seasonality, delinquencies tend to rise in February-May. Nonetheless, there has been a marked increase in underlying delinquency trends and a fall in payment rates since 2001. Very high growth and expansion into the provinces, especially in the more volatile credit card portfolio, and weakening consumer confidence, may see delinquencies rise further. Higher consumer indebtedness and rising costs of living are increasing the risks of asset quality deterioration, particularly for AEONTS’ low-income market.
AEONTS securitised THB2bn of its hire purchase receivables in February 2004 and THB3bn of its credit card receivables in February 2005. The impact of the securitisation on profitability and asset quality should generally be neutral and positive for liquidity and capital. Note while AEONTS is largely quarantined from the securitized portfolios, there is still some exposure in the form of THB1.3bn of subordinated loans.
Total equity at end-February stood at THB2.5bn. AEONTS’ equity to net receivables ratio stood at 16% at end-February 2005. While internal capital generation is currently strong, this may be impacted by a high dividend payout ratio and rising delinquencies.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
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.
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