Bangkok--Jun 22--Fitch Ratings
Fitch Ratings (Thailand) has today upgraded TISCO Finance Public Company Limited’s (“TISCO”) National ratings to Long-term ‘A(tha)’ from ‘A-(tha)’ (A minus(tha))’ and National Short-term ‘F1(tha)’ from ‘F2(tha)’. The Outlook remains Stable.
The upgrade reflects TISCO’s sustained improvement in profitability, its strong asset quality and capital position relative to its peers, conservative management track record and the strengthening financial services franchise despite its small size. The ratings also take in account margin pressures due to intense competition, as well as the volatility of investment banking and brokerage income. Funding is weaker than some banks’, although stronger than that of its finance peers.
The Stable Outlook reflects Fitch’s expectations that TISCO’s profitability and asset quality should generally be maintained notwithstanding some moderation in growth due to the weakening in the financial markets and economy in 2005. The group will be reorganised with the proposed set-up of a separate holding company, although this should have limited impact on TISCO’s credit profile as it will remain the core banking and finance operating vehicle. It should reduce the volatility of earnings contribution from securities arm, but may also result in lower capital ratios. While TISCO received capital support from the Ministry of Finance during the crisis, given its small size support from the government in the long-term, although possible, should not be relied upon.
TISCO reported net income of THB2.3 billion in 2004, up from THB1.9bn the prior year, reflecting strong hire purchase growth, lower provisions and higher securities income. In Q105, net income fell to THB525.1 million from THB612.4m in Q104 due mainly to lower brokerage fee and investment banking revenue. TISCO’s net interest margins rose slightly to 4.5% in Q105 from 4.3% in 2003 due to continued strong hire purchase growth. Costs for a new banking platform and increased tax expense may affect net profitability in 2006.
Auto hire purchase receivables currently make up 68% of TISCO’s total loan portfolio, with corporate lending accounting for the remainder. TISCO’s business strategies and risk management are relatively conservative compared with other finance companies in Thailand. Hire purchase growth, while strong, has been lower than its major rivals’ and is primarily for new car financing, suggesting tighter credit origination standards. At end-March 2005, impaired receivables had fallen to THB2.7bn or 4.6% of total receivables from 5.5% of total receivables at end-2003, mainly related to corporate lending. Impaired receivables within the hire purchase portfolio remained low at about 1.3%, aided by a focus on new car financing, although the increasing shift towards provincial expansion raises medium-term credit risks. Nonetheless, loan loss reserve coverage currently appears strong, as does its net impaired loans/equity ratio.
Due to TISCO’s strong growth, excess liquidity has fallen sharply in the past three years. The new banking licence should help TISCO’s funding profile in the medium-term. At end-March 2005, its Tier 1 capital amounted to THB8.9bn or 14.9% of risk-weighted assets, which is appropriate for its small size and market volatility. However, high dividend payouts and growth will see this ratio fall, although it should remain relatively strong. TISCO’s shareholding structure is dispersed with the largest shareholder of 13% held by an associated company of Taiwan’s China Development Industrial Bank Group.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
Disclosure: TISCO Asset Management Company Limited (of which TISCO holds 99.9%) owns 10% of the shares in Fitch Ratings (Thailand) Limited. No shareholder, other than Fitch Ratings Limited of the UK, is involved in the day-to-day operation of, or credit rating reviews undertaken by, Fitch Ratings (Thailand) Limited.
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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