Bangkok--Jun 23--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Finansa Public Company Limited’s (“FNS”) National ratings at Long-term ‘BBB(tha)’ with Stable Outlook and Short-term ‘F3(tha)’, despite the Bank of Thailand’s (“BOT”) earlier rejection of a banking application submitted by FNS’s finance subsidiary - Finansa Credit (“FC”). As a result of the rejection, the proposed merger between FC and Bangkok First Investment and Trust (“BFIT”) has been shelved.
The BOT rejected FC’s banking application in April 2005 on the basis that FC failed to pass the BOT’s qualification criteria under Article 4.2 of the Ministry of Finance’s notification. It is unclear on what specific basis FC's application was rejected but clause 4.2 includes one or more of the following areas — roles and behaviour of directors and senior managers; risk management; undertaking of high-risk business; organizational structure and working process; internal control and audit; compliance to important rules and regulations; cooperation with the authorities; and behaviour in conformity with good governance.
While the BOT’s rejection of FC’s banking application raises concerns on FNS, it does not appear to have had a significant impact on FNS’s funding and liquidity conditions nor its business operations to date, although this needs to be monitored. Moreover, the BOT, at the same time, affirmed FC’s finance licence while the Securities and Exchange Commission approved FNS to undertake asset management business in January 2005, implying that the licensing criteria for a commercial bank is stricter. While the finance business could be affected by regulatory changes, this accounts for a small portion of FNS’s overall revenues. The BOT has asked FC to submit a revised three-year business plan by the end of June 2005. The plan assumes that FC will continue as a finance company, and that it will have an opportunity to reapply for a commercial banking licence after three years.
The ratings reflect FNS’s financial holding company structure, revenue diversification and adequate capital and liquidity positions, but also take into account its lack of a strong financial institutional shareholder, exposure to market and credit risks and its dependence on volatile brokerage earnings, investments and proprietary trading.
In Q105, FNS’s net income fell to THB58.7million from THB157.4m in Q104. While FNS’s earnings and profitability outlook for 2005 is weaker, earnings volatility is already factored into the rating. Impaired loans fell to THB332.2m or 11.5% at end-March 2005 from 15.4% at end-2004. However, the group’s loan loss reserves appear low at THB119.3m, equivalent to only 35.9% of impaired loans, implying some risk of further provisioning.
FNS’s lack of support from a strong financial institutional shareholder makes it more vulnerable to event risk such as the recent licence rejection or periods of market volatility. Natural Park, a Thai property developer, and currently FNS’s largest shareholder with an 18% stake, is financially weak and has recently announced that it intends to sell its stake. Management holds an approximate 34% stake in FNS.
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.
Fitch’s rating definitions are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days. End.