Bangkok--21 Oct--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned National Long-Term ratings of ‘A(tha)’ to two outstanding tranches of TISCO Bank Public Company Limited’s (TISCO) unsubordinated and unsecured debentures of THB3bn due 2010, and THB1bn due 2012. At the same time, the agency has affirmed TISCO’s National Long-term rating at ‘A(tha)’ with a Stable Outlook, and National Short-term rating at ‘F1(tha)’.
The ratings reflect TISCO’s strong profitability, asset quality and capital, although it is more vulnerable to funding pressures than larger banks. Asset quality and margins could also face renewed pressure in 2009 if there is a sharp contraction in economic growth. The Stable Outlook is based on the expected maintenance of strong profitability, asset quality and capital, although the bank has a weaker funding and liquidity profile than larger peers.
TISCO’s reliance on large depositors, which account for over half its funding base, and mainly short liability duration, is a concern. At the moment, full deposit protection and the bank’s back-up facilities should help mitigate liquidity risk. TISCO indicated that it intends to lengthen the bank’s liability structure and further diversify its funding sources to retail depositors in the next two to three years as regulatory deposit protection is reduced.
TISCO reported a net profit of THB0.9bn in H108, a 12.5% yoy increase from THB0.8bn, due to strong loan growth, and increase in non-interest income from bancassurance and brokerage fee, although loan growth and performance is expected to weaken in the next year. Q308 net profit was THB0.4bn, a 9.5% yoy decline from THB0.44bn, due mainly to lower brokerage revenues.
Auto hire purchase receivables (17% are used car financing) account for 74% of loans, with the remainder mainly corporate loans. Impaired loans were flat at THB3.9bn (4.1% of total receivables) at end-H108 from THB3.8bn at end-2007 (4.3%). Loan loss reserve coverage remains strong at about 73%.
The planned group restructuring by year-end, which will result in the transfer of securities and asset management shareholdings to a new listed holding company, will impact the bank’s earnings, but future performance of the bank should be more stable.
While capital ratios have declined significantly due to high dividend payouts and asset growth during the past three years, a Tier 1 ratio of 10% is still reasonably strong, although Fitch expects capital to be maintained at this level. A strategic tie-up would help bolster its franchise, although management indicates this is not currently under consideration.
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: Darunee Peanmanakit, Patchara Sarayudh, Vincent Milton, Bangkok +662 655 4755.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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