Bangkok--9 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-Term rating of ‘A-(tha)’ (A minus (tha)) to TISCO Bank Public Company Limited’s (TISCO) subordinated and unsecured debentures of up to THB1.0bn due 2018. The Outlook of the bank is Stable.
The rating reflects TISCO’s strong profitability, asset quality and capital, although it is more vulnerable to funding pressures than larger Thai banks. The weakening credit environment and an expected sharp economic slowdown next year, with Fitch projecting GDP growth at 0.9%, could affect the bank’s performance in 2009. Nonetheless, the Stable Outlook is based on the expected maintenance of overall profitability, asset quality and capital, although the bank has a weaker funding and liquidity profile than larger banks in Thailand.
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 THB1.3bn in 9M08, a 7.6% year on year increase from THB1.2bn, due to strong loan growth, and increase in non-interest income from bancassurance. Loan growth and performance is expected to weaken in the next year. Its net interest margin remained relatively high at about 4.0% in 9M08.
At end-September 2008, auto hire purchase receivables (18% of which provide financing for used cars) accounted for 75% of loans, with the remainder mainly corporate loans. Impaired loans were flat at THB3.8bn (3.9% of total receivables) at end-September 2008. Loan loss reserve coverage remained strong at about 77%.
The group restructuring, 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.
At end-September 2008, TISCO’s Tier 1 ratio of about 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, Vincent Milton, Bangkok +662 655 4755.