Bangkok--13 Mar--TRIS Rating TRIS Rating Co., Ltd. has affirmed the ratings of Krungthai Card PLC (KTC) and its existing senior debentures at “A-”. At the same time, TRIS Rating has assigned the rating of “A-” to KTC’s proposed up to Bt7,000 million senior debentures. The rating outlook remains “stable”. The ratings reflect KTC’s capable management team and efficient operation system which sustain its solid market position in the credit card business. The ratings also take into consideration the strong support it receives from a major shareholder, Krung Thai Bank PLC (KTB). However, these strengths are partially constrained by intense competition, unfavorable business factors, and regulatory risk, which might affect future expansion and profitability. The “stable” outlook reflects TRIS Rating’s expectation that KTC will be able to maintain its strong position in the credit card business, despite intense competition. KTC is also expected to be able to sustain the good credit quality of its growing loan portfolio in credit card, personal loans (including cash revolving loans), and self-employed loans. The company’s sufficient capitalization plus good operational and sufficient risk management systems are expected to help mitigate any future downside risk arising from adverse changes in the business environment. TRIS Rating reported that KTC continues to maintain its strong market position in the credit card business. In terms of the number of cards issued, KTC had a market share of 12.3% as of December 2007 with the largest credit card loans among 14 non-bank operators. However, changing business conditions (tighter regulations on qualifications of credit card holders and the minimum repayment required, an interest rate cap for the personal loan business, the economic slowdown and lower consumer confidence, and stronger provisioning criteria) have limited KTC’s loan portfolio growth and profitability. As of December 2007, KTC had total loan receivables of Bt44,922 million, a 12.0% increase from Bt40,126 million in 2006. The receivables comprised credit card loans (68%), personal loans (26%), self-employed loans (5%), and circle loans (1%). TRIS Rating said that KTC reported Bt521 million in net profit for 2007. The return on average equity (ROAE) improved to 8.95% for 2007, up from 7.76% in 2006, but the return on average assets (ROAA) declined to 1.19% from 1.23% in 2006. As of December 2007, KTC’s overall delinquency rate (loans more than 90 days past due) was 4.1%, up from 3.2% in 2006, and 3.1% in 2005. The rise was a result of two reasons: an increase in loans past due from self-employed loans, and the strategy to diversify the loan portfolio by expanding personal loans, which give a greater rate of return but carry higher risk. KTC’s total allowances for loan losses increased from Bt1,006 million in 2006 to Bt1,726 million in 2007. The allowance coverage ratio (total allowances for loan losses divided by total loans) improved to 3.84% in 2007 from 2.51% in 2006. Because the loan portfolio expanded, key leverage ratios fell. The equity to asset ratio dropped to 13.0% in 2007 from 13.6% in 2006 while the equity to total loan ratio dropped to 13.2% from 14.2%. The debt to equity ratio also reflected the increase in leverage, rising to 6.33 times from 5.94 times in 2006. KTC’s financial flexibility and liquidity are considered adequate. As of December 2007, KTC’s funding came from both financial institutions and the debt market. The funding structure comprised 34% short-term borrowings, 33% long-term borrowings (including syndicated loans), and 33% debentures. In addition, KTB has extended Bt13.03 billion in committed lines of credit to KTC, affording significant flexibility. As of December 2007, the outstanding loan balance at KTB was only Bt2.8 billion, or 21.5% of the total available credit. The utilization rate at KTB is kept low as KTC maintains these committed lines as a funding source of last resort.