Bangkok--28 Apr--Fitch Ratings
Fitch Ratings has today assigned a ‘A-(tha)’ (A minus(tha)) National Long-term rating to TISCO Bank Public Company Limited’s (TISCO) subordinated and unsecured debentures of up to THB2.0bn due 2019. The Outlook on the bank is Stable.
The rating reflects TISCO’s strong profitability, asset quality and capital, although the agency notes that the bank is more vulnerable to funding pressures than larger Thai banks. The weakening credit environment and expected sharp economic slowdown in 2009, with Fitch forecasting that Thailand’s GDP will contract by 3.8%, could also affect the bank’s performance this year. 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 its larger peers 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 however, full deposit protection and the bank’s back-up facilities should help mitigate the liquidity risk. Also, TISCO has indicated it intends to lengthen the bank’s liability structure and further diversify its funding sources to retail depositors over the next two to three years as regulatory deposit protection is reduced.
The completion of the group restructuring at end-2008 resulted in the transfer of TISCO’s securities and asset management shareholdings to a new listed holding company, TISCO Financial Group Public Company Limited. While the bank’s earnings after the group restructuring will be reduced, future performance of the bank should be more stable.
TISCO reported a net loss of THB0.4bn in Q408 due largely to a substantial realised loss of THB1.2bn from the sale of its equity investments as part of the group restructuring. TISCO’s net interest margin (NIM) improved to 4% in 2008 from 3.4% in 2007 mainly due to lower funding costs and strong loan growth (23.3% in 2008). For Q109, TISCO’s performance weakened with a lower net profit of THB0.3bn (Q108: THB1bn), mainly due to a sharp decline in income from investments resulting from the transfer of its subsidiaries to the holding company. Fitch foresees TISCO’s profitability for 2009 could be affected as a result of slower loan growth and rising provisioning costs, although portfolio acquisitions and low interest rates may help offset this impact.
Although auto hire purchase remain TISCO’s largest exposure at THB73.1bn at end-2008 (72% of total loans), its exposure to the real estate and construction sector has also increased significantly to THB8.8bn at end-2008 (end-2007: THB5.0bn). Nevertheless, TISCO’s impaired loans declined to THB2.6bn (2.5% of total loans) at end-2008 from THB3.2bn (3.9% of total loans) at end-2007, due mainly to a THB2bn loan write-off. As a result, its loan loss coverage ratio continued to decline to 62.5% of NPLs at end-2008. The bank’s impaired loans remained relatively stable at THB2.6bn (2.5% of total loans) at end-March 2009. TISCO’s Tier 1 capital ratio declined to 10.2% at end-March 2009 (end-2008: 11.2%) due to the acquisition of a THB4.9bn auto hire purchase portfolio from Primus Leasing Company Limited and the bank’s loan growth of about 5% during the quarter.
Disclosure: TISCO Asset Management Company Limited (of which TISCO Financial Group Public Company Limited holds 100%) 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.
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.
Contacts: Patchara Sarayudh, Vincent Milton, Bangkok, +662 655 4755.