Bangkok--30 May--TRIS Rating
TRIS Rating Co., Ltd. has upgraded the company rating of Siam Commercial Leasing PCL (SCBL, formerly known as Siam Panich Leasing PLC (SPL)) and the rating of SCBL’s bills of exchange (B/E) to “A+” from “A-”. At the same time, TRIS Rating has upgraded the ratings of SCBL’s existing debentures to “AA” from “A-” as a consequence of the guarantee received from its parent, Siam Commercial Bank PCL (SCB). The rating outlook is “stable”.
SCBL’s guaranteed debenture ratings reflect credit profile of SCB, the 96.83% shareholder of SCBL and the guarantor for SCBL’s debentures. SCB’s credit rating is supported by its strong market position as the third largest commercial banks in Thailand with a strong operating branch network nationwide, its improving financial and business performance, its sound and experienced management team, and its strong cushion of capital fund and allowance for loan loss against bad debts. SCB’s rating, however, is partly constrained by less favorable operating environment, uncertainty in the securities industry, intensifying competition in consumer and retail finance industry, which might limit the bank’s overall growth prospects and profitability.
SCBL’s company and B/E ratings are based on its strong market position in the automobile hire purchase business and the ability of its experienced management team to continuously expand the loan portfolio. More importantly, the ratings are enhanced from the standalone rating of SCBL as SCBL is a strategic subsidiary of SCB in the automobile hire purchase business, fulfilling its parent’s universal banking policy. However, these strengths are partially offset by intense competition, lower yields, higher operating expenses and losses from repossessed assets which affect profitability. Moreover, slowing economic conditions plus lower consumer confidence and spending may adversely impact its aggressive expansion plan and the ability of customers to repay loans.
The “stable” outlook for SCBL’s guaranteed debenture ratings reflect the likelihood that SCB will deliver a medium-term financial performance as expected, and will be able to keep its leading market position in its core businesses and to control its asset quality efficiently as planned. The bank’s good risk management system, its proven track record and its strong capital fund will help mitigate future downside risks from less favourable operating environment. The “stable” outlook for SCBL’s company rating reflects the expectation that SCBL will be able to maintain its strong market position, expand its portfolio and control asset quality. Moreover, the ratings are based on the status of SCBL as an important strategic entity under SCB Group; continuous business and financial support are expected from SCB.
TRIS Rating reported that SCB is the third largest among all 14 Thai universal banks, and has a strong franchise value. With a century of experience in the banking industry, SCB has developed a proficient management team and universal banking platform that has enabled the bank to compete in this very competitive industry. SCB’s centralization of the management and control system has been settled to benefit the overall group’s business control and cost efficiency, while decentralization of its business unit functions through its branch and subsidiary network nationwide has enhanced the group’s market position in its core businesses.
SCB’s management has a clear policy to focus on consumer and retail lending businesses and to diversify into fee-based businesses. Acquiring SCBL’s shares in 2006, holding 96.83% stake, is an inevitable evidence of SCB’s attempt to expand into consumer banking business. As of December 2006, SCBL’s total receivables accounted for 7% of SCB’s consolidated loan outstanding, while SCBL’s total income contributed more than 5% to SCB’s consolidated income. The bank’s good risk management system, experienced management team and strong cushion of capital fund and allowance for loan loss against bad debts should mitigate future downside risks.
TRIS Rating said, SCBL is one of Thailand’s leading automobile financing operators. After becoming SCB’s subsidiary in the second quarter of 2006, an aggressive loan expansion policy was implemented. The loan portfolio grew by 24.9% last year, from Bt42,710 million at the end of 2005 to Bt53,329 million at the end of 2006. Net interest income for 2006 was reported at Bt1,908 million, lower than the Bt2,048 million reported in 2005, due to higher average funding costs. SCBL’s net profit declined to Bt316 million in 2006, 63.9% lower than the Bt875 million earned in 2005. The significant decrease in net profit was partly due to a one-time Bt264 million provision in the second quarter of 2006. The provision was the result of changes in the policy for the allowance for doubtful accounts needed to meet SCB’s standard and complies with the Bank of Thailand’s consolidated supervision policy.
Aggressive portfolio expansion while economic growth slows and more competitive, mean a greater possibility that SCBL’s profitability and asset quality will deteriorate. However, TRIS Rating expects that SCB’s efficient risk management system will enable SCBL to control asset quality.