Bangkok--9 Aug--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating of Nava Leasing PLC (NVL) at “BBB-” with “negative” outlook. The rating reflects NVL’s high average funding costs compared with competitors and credit risk exposure from its new high risk-high returns loan portfolio (auto refinancing loans, a form of secured personal loans). In addition, unfavorable operating environment might deteriorate the company’s overall asset quality and limit portfolio expansion in the future. However, these concerns are partially mitigated by the company’s adequate capital base and growing demand for consumer loans.NVL’s “negative” outlook is based on concerns over its asset quality after the shift to auto refinancing loans. Although relatively higher yields from the new product will be able to alleviate the higher average funding costs, TRIS Rating is concerned that the increase in interest yields may not be sufficient to cover the possibility of higher provisions from weakening loan quality. However, if the asset quality is controllable and the higher yields are enough to compensate the expected deterioration in loan quality, the outlook of the company will be revised. TRIS Rating reported that NVL is a small independent auto hire purchase company with outstanding loans of Bt2,179 million at the end of March 2008. During a recent business transition period, outstanding loans fell to Bt2,210 million in 2007 from Bt2,594 million in 2006. Outstanding loans slightly decreased to Bt2,179 million at the end of March 2008 due to a drop in machinery and equipment leases, while outstanding auto hire purchase loans were stabilized at the same level. Intense price competition and a high average funding cost have pushed the company to seek new customer segments that should generate higher returns. After a new managing director took charge in mid-2007, the company began to offer auto refinancing loans. The underwriting policies and process are similar to its traditional auto hire purchase loans. However, the company targets customers who own cars and use cars as collaterals rather than customers who need money to purchase cars.TRIS Rating said, NVL has also implemented a new business model, providing loans through authorized representatives under the name “Nava Express”. The authorized representatives will act as small branches to obtain customers. The quality of customers affects the commissions paid to the representatives. This criterion is a tool to force the representatives to indirectly help NVL monitor and control customer quality. After the launch of this new business model in July 2007, the volume of auto refinancing loans originated through this channel was Bt39.25 million at the end of 2007 or 6% of all auto loans granted in 2007. Auto refinancing loans grew to Bt97.39 million or 45% of all new loans during the first quarter of 2008. At the end of March 2008, the non-performing loan (NPL) ratio for auto refinancing loans was 0.54% of Bt134.9 million outstanding auto refinancing loans across 528 accounts. Despite the relatively low NPL ratio of this new business, it is too early to evaluate actual quality of this new customer segment. In mid-2008, the company began to offer asset management services though a subsidiary, Blessing Asset Services Co., Ltd. (BAS). The services include collection and repossession of bad debts. The new business is expected to generate additional fee income and diversify its revenue sources. However, the success of the new business needs time to be proved. NVL’s market position is likely to improve by the new loan product. Asset quality remains a major concern, though the NPL ratio improved from 3.03% in 2006 to 2.96% in 2007 and 2.46% at the end of March 2008. The new product, auto refinancing loans (a form of secured personal loans), is considered more volatile to adversely changes to market condition, a slowing economy, high oil prices, and an uncertain political situation, which make maintenance of asset quality at 2.5% a major challenge. NVL has maintained an adequate capital base to absorb potential losses from the higher risk exposure. The ratio of shareholders’ equity to total assets has held at 44%-48% since 2005. This level was considered adequate, said TRIS Rating.