Bangkok--17 Jul--Fitch Ratings
Fitch Ratings has today affirmed TISCO Bank’s (“TISCO”) National Long-term rating at ‘A(tha)’ with a Stable Outlook and National Short-term rating at ‘F1+(tha)’.
TISCO’s ratings reflect its strong asset quality, capital and profitability, as well as its conservative management track record. The Outlook for the rating is Stable given that profitability and asset quality should generally remain strong despite the weakening operating environment in 2006. Although TISCO received capital support from the Ministry of Finance during the 1997 financial crisis, given the small size of the bank, government support, although possible, should not be relied upon.
TISCO group is in the process of setting up a separate holding company. The effect of the de-consolidation of its former affiliates on TISCO’s risk profile should be positive although the bank’s profitability may be moderately affected. Following de-consolidation, the risk exposure to the group’s other non-bank businesses and the volatility of the earnings contribution from its former securities subsidiary should diminish. After the de-consolidation, TISCO will remain the group’s core banking and finance operating vehicle and should enjoy a lower capital charge.
TISCO’s net income fell to THB1.8 billion in 2005 as a result of smaller gains on investments, reduced brokerage and investment banking fees and higher operating expenses. Its net interest margins fell slightly to 4.4% in 2005 due to intensifying competition. In Q106, TISCO’s net income rose to THB551.2 million from THB525.1m in Q105 due to higher investment gains. Annualised net interest margins in Q1 fell significantly to 3.82% as a result of higher funding costs. The agency notes that increased tax expense will also effect the bottom line in 2006.
Auto hire purchase receivables make up 69.9% of TISCO’s total portfolio. Amid rising interest rates, TISCO has slowed its hire purchase lending while expanding its deposit base and investing excess liquidity in the floating-rate interbank market. It is also shifting the proportion of higher yield used-car lending to 30% of the hire purchase portfolio from 10% over the next three years to improve margins.
At end-March 2006, impaired receivables fell to THB2.5bn (3.8% of total receivables) from THB2.6bn (4.6%) at end-2004. Impaired hire purchase receivables remained low at about 1%, aided by TISCO’s continuing high proportion of new car financing and lending to buyers of stronger Japanese brands. Loan loss reserve coverage of 143.3% of impaired loans and a net impaired loans/equity ratio of negative 9.14% appears very strong. At end-March 2006, TISCO’s Tier 1 capital amounted to THB11bn or 17.9% of risk-weighted assets, which is relatively high, although appropriate given the bank’s small size. The agency, however, notes that high dividend payouts could see a fall in its capital adequacy ratio.
TISCO was established in 1969 as a finance company and changed its status to a commercial bank in July 2005. It has a strong niche in consumer finance, asset management and investment banking in Thailand.
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.
CONTACTS: Chaiyapat Paitoon, Sorasit Vanaprasert, Vincent Milton, Bangkok +662 655 4755