Bangkok--22 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed TISCO Bank Public Company Limited’s (TISCOB) National Long-term rating at ‘A(tha)’ with a Stable Outlook, National Short-term rating at ‘F1(tha)’, National Long-term senior unsecured debts at ‘A(tha)’, and National Long-Term subordinated unsecured debts at ‘A-(tha)’.
The ratings reflect TISCOB’s strong profitability, asset quality and capital, although it is more vulnerable to funding and liquidity pressures than larger banks. The Outlook for the rating is Stable based on the expected maintenance of strong profitability, asset quality and capital, although the bank faces higher funding and liquidity risks than larger peers, which could impact its creditworthiness during systemic distress.
TISCOB’s reliance on large depositors, which account for more than 80% of total deposits (including bills of exchange; B/Es), and mainly short-term liabilities, make it more vulnerable during the periods of systemic distress. However, the three year extension of a full deposit protection for the industry in 2008 should help maintain funding stability over the next three years. Also, TISCOB intends to diversify its funding base to retail depositors over the next few years. As at end-September 2009, TISCOB’s retail deposits base has increased to about 21% from 13% at end-2008.
TISCOB reported a net profit of THB1.2bn in 2008, despite reporting a net loss of THB0.4bn in Q408. This is due largely to a substantial realised loss of THB1.2bn from the sale of its equity investments as part of the group’s restructuring plan. For H109, TISCOB’s performance was resilient with net interest income improving to THB2.5bn from THB2.4bn in H108, although net profit declined to THB0.7bn (H108: THB1.3bn), due mainly to a jump in service fees charged by the holding company. As a result, TISCOB’s return on asset (ROA) and return on equity (ROE) dropped to 1.2% and 12.7%, respectively at end-June 2009 (end-June 2008: 2.6% and 22.3%). Despite the poor economic environment in H109, TISCOB continued to report relatively strong loan growth in H109 of 7.7% year-to-date (or 15.4% on annualised basis) compared with the negative loan growth reported by most other Thai banks.
TISCOB’s impaired loans remained flat at about THB2.6bn at end-September 2009 (end-2008: THB2.6bn) or about 2.4% of total loans. TISCOB’s loan loss reserve (LLR) coverage ratio dropped sharply to 62.5% at end-2008 (2007: 76.3%), due to THB1.9bn in loan write-offs in 2008. At end-June 2009, coverage ratio declined further to 55.4% but rose to about 67% at end-September 2009 due to higher provisions and time lag of loan write-offs.
While capital ratios have declined significantly in the past few years due to high dividend payouts and asset growth, Tier 1 capital is still strong at 10.1% and total capital of 14.3% at end-June 2009. Although the implementation of Basel II IRB approach at end-2009 could cause TISCOB’s capital ratio to increase moderately on the back of lower risk weighting on consumer loans, equity/assets ratio should remain at about 9%.
TISCOB was established in 1969 as a finance company and changed its status to that of a commercial bank in July 2005. After the group’s restructuring in December 2008, TISCOB is now a major subsidiary of TISCO Financial Group Public Company Limited (TISCOFG) and has strong niche positions in car hire purchase business.
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.
Contacts: Patchara Sarayudh, Vincent Milton, Bangkok +662 655 4755.