Bangkok--11 Aug--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the ratings of Thanachart Capital PLC (TCAP) and its senior debentures (TCAP083A, TCAP103A) at “A” with “stable” outlook. At the same time, TRIS Rating has also affirmed the ratings of Thanachart Bank PLC (TBANK), a 99.36%-owned subsidiary of TCAP, and its bills of exchange at “A” with “stable” outlook.
The ratings reflect TCAP’s capable management team, its strong market position in the automobile hire purchase business, the improvement in its standard risk management system, and continued improvement in the company’s diversification into non-interest based income. The ratings also take into consideration the enlarged scope of its banking businesses under the universal banking platform, which are expected to provide the group with long-term growth and earnings. Achieving synergies within Thanachart Group has yet to be proved, and are expected to generate steady earnings to the group in the long term. The ratings are constrained by TCAP’s limited franchise value compared to large-sized commercial banks, the less favorable economy and banking business environment, uncertainty in the securities industry, and intensifying competition in the consumer finance industry, which might limit the group’s business expansion and profitability.
TCAP’s “stable” outlook reflects the likelihood that the company will deliver medium-term financial performance as expected, due to its enhanced franchise value under the universal banking platform, which is expected to support the group’s business and revenue diversification and cost efficiency. Its proficient management team, good risk management system and adequate capital base are expected to help mitigate future downside risks. The benefits of achieving synergies within the group have yet to be proved.
TRIS Rating mentioned about the ratings of TBANK and its bills of exchange that the ratings reflect strong financial profile and management’s capability and experience in the bank’s core business, hire purchase. The ratings also consider TBANK’s prospects for growth in assets and deposits after Thanachart Group’s reorganization and TBANK’s network expansion in the next few years are completed. However, these strengths are partially offset by intense competition in the banking industry, TBANK’s limited franchise value compared to large-sized banks, and the currently high concentration of hire purchase loans. Moreover, during 2006-2007, the bank’s earnings will be adversely impacted by higher expenses involved in building its own franchise. Achieving of the group’s synergies to enhance its franchise value and the group’s savings deposit taking to establish stable funding sources have yet to be proved.
While the “stable” outlook recognizes TBANK’s designated role as the group’s core financial and banking operator. The outlook also takes into account TBANK’s ability to maintain its strong market position in its major business, high purchase (HP) lending. The higher yield and driving force for fee income growth of the HP business are expected to help offset the rising cost of funds for the bank during the expansion phase.
TRIS Rating reported that, based on consolidated asset size as of March 2006, TCAP is ranked eighth among all 14 Thai universal banks. With vast experience in the finance industry, TCAP has developed a proficient management team. The team has enabled the company to compete and remain flexible to respond to changes in the economy and business environment. On 22 April 2005, the company was granted new status as a financial holding company by the Ministry of Finance (MOF). Under its new structure, TCAP will be an operating holding company until the existing hire-purchase
receivables gradually run down over the next three years. The company’s 99.36% owned subsidiary, TBANK, currently operates under a universal banking license, with TCAP acting as a financial holding company for the group. To improve cost efficiency and to gain overall control of the group’s business, TCAP has also centralized its group’s business operations and management systems.
TRIS Rating said that TCAP’s reorganization to a financial holding structure has been executed smoothly. The reorganization process will have some effect on TCAP’s financial returns during the transition period of 2005-2007, but it will ultimately enhance the company’s position by providing the company with long-term opportunities in commercial banking businesses. The company’s consolidated risk management framework has been improved continuously to comply with the international standards, and its experienced management team has a proven track record. Slower economic growth, high
inflation rate and high competitive environment in the banking business are expected to limit banking operators’ business growth and profitability during the next few years.
The Financial Sector Master Plan, issued in January 2004, compelled Thanachart Group to reorganize the group’s business in accordance with the One Presence policy, which permits only one deposit-taking institution to exist within a financial conglomerate. Thanachart Group was preoccupied with the structural change in which the parent handed over all financial service businesses to TBANK, which becomes the group’s key financial operator. During 2005 to the first half of 2006, TBANK succeeded in establishing physical branch network, ATM pools, and foreign exchange booths, however, efficient utilization of its branch network to improve the group’s market position and business diversification, and to generate
steady earning in the long term, has yet to be monitored.
With the strong team of HP staff and an efficient operating system that enabled its parent to become the largest player in the HP market, TBANK is well equipped to succeed in the auto hire purchase business, and is able to achieve the transition period during 2005-June 2006 smoothly. Regarding to TBANK’s funding structure, the bank has extensively expanded the size of saving deposits, which are considered as a stable and cheap funding source for commercial banks. New deposits were used for refinancing TCAP’s matured promissory notes and financing its own HP portfolio expansion. As of March 2006, the bank’s total deposits captured 84% of its total funding. Savings accounts were accounted for only 10% of total deposits, which was considerably low when compared with the banking industry average of 40%. Raising saving deposits to meet a 20% proportion will challenge TBANK to achieve in the next few years, said TRIS Rating.
Thanachart Capital PLC (TCAP)
Company: Affirmed at A
Issue Ratings:
TCAP083A: Bt1,000 million senior debentures due 2008 Affirmed at A
TCAP103A: Bt4,000 million senior debentures due 2010 Affirmed at A
Rating Outlook: Stable
Thanachart Bank PLC (TBANK)
Company: Affirmed at A
Issue Rating:
Bt1,200 million bills of exchange due 2009 Affirmed at A
Rating Outlook: Stable