TRIS Rating Co., Ltd. has assigned a “A” rating to the proposed senior debentures under a medium-term debenture program, valued up to Bt20,000 million, of TISCO Bank PLC (TISCOB), a 99.98% owned subsidiary of TISCO Financial Group PLC (TISCO). At the same time, TRIS Rating has also affirmed TISCOB’s company rating at “A”, and senior and subordinated debenture ratings at “A” and “A-”, respectively. The rating outlook remains “positive”. The ratings reflect TISCOB’s capable management team, good risk management system, and ability to keep its strong competitive position in auto hire-purchase lending. The ratings also take into account the good quality of TISCOB’s assets and the bank’s ability to achieve a sustainable level of profits. However, the ratings are constrained by the bank’s limited distribution network compared with larger banks, possible funding risks caused by the drop in the amount of insured deposits in accordance with the Deposits Protection Agency Act (DPA), as well as the regulatory risk related to the issuance of bills of exchange (B/E). In addition, TISCOB faces intense competition in the auto hire-purchase business, uncertain effects of the recent severe flooding in Thailand, as well as uncertainties in the domestic political situation and the worldwide financial arena. These forces may affect the bank’s asset quality as well as its long-term competitiveness.
The “positive” outlook reflects the likelihood that TISCOB will retain its strong market position in the auto hire-purchase business and deliver the expected financial performance in the medium term. The outlook also reflects the bank’s ability to control asset quality and maintain a sufficient amount of capital funds. These two abilities will help mitigate future downside risks from the uncertain economic and business environment. Going forward, TISCOB’s ratings and outlook will be influenced by the challenges it will face from any unforeseen outcomes arising after the full implementation of the DPA in August 2012. These challenges could include the ability to maintain its strengths and secure stable sources of funding at reasonable prices.
TRIS Rating reported that TISCOB has developed a proficient management team with a prudent management style that has enabled it to grow in niche markets. At the end of September 2011, TISCOB was ranked 10th among 15 Thai commercial banks in terms of asset size, with a 2.3% market share in loans and a 0.5% share in deposits. The bank has continually expanded its loan portfolio, reaching a 20% average annual growth rate over the past five years. As of September 2011, TISCOB’s loan portfolio totaled Bt176 billion, up by 22% from Bt145 billion in 2010, as the bank made more loans to both corporate and retail customers. The bank has maintained its market position in its core business, hire-purchase lending. At the end of June 2011, TISCOB was the third-largest auto loan provider in Thailand, with approximately 13% market share, based on TRIS Rating’s database.
TRIS Rating said, TISCOB’s financial profile has continually strengthened. In 2010, net income was Bt1,993 million, up by 47% from Bt1,357 million in 2009. Its return on average assets (ROAA) and return on average equity (ROAE) in 2010 improved to 1.36% and 17%, respectively, compared with 1.08% and 12.03% in 2009. The bank’s performance continued to improve in the first nine months of 2011, as illustrated by a 29% year-on-year rise in net profit to Bt2,032 million. The improvement was mainly driven by an increase in net interest income, coupled with a wider interest spread, an increase in fee-based income, as well as the efficient control of credit costs and operating costs.
TISCOB has an effective risk management system in place to control asset quality. The bank’s asset quality remained strong, as reflected in the continual decrease in the non-performing loans (NPL) to total loans ratio. As of September 2011, TISCOB’s NPL ratio declined to 1.1%, the lowest level in the industry, and far below the industry average of 4% for the 11 Thai universal banks in TRIS Rating’s database. Furthermore, TISCOB’s non-performing assets (NPA; the sum of classified loans more than three months overdue, plus restructured loan and foreclosed property) were 0.15 times its capital funds plus the allowance for doubtful accounts. This ratio improved from 0.27 times in 2009, and remains lower than the industry average of 0.53 times.
In terms of funding and liquidity, TISCOB is exposed to some level of liquidity risk, as the bank had a negative maturity gap for assets and liabilities with less than 12 months duration. TISCOB has relied on wholesale funding, which tends to be a more volatile source of funding. At the end of September 2011, the bank continued to rely on large depositors and lenders (deposits or B/E of over Bt10 million) for the majority of its funds. Large depositors and lenders provided around 77% of total deposits plus B/E. The bank may face liquidity problems if a large number of depositors or lenders wish to withdraw their funds at once. To offset this threat, TISCOB has a strategy to increase the number of retail accounts in an effort to diversify its sources of funding. Two factors may affect TISCOB’s financial strength and the stability of its funding sources: the uncertain future regulations which will more strictly control the issuance of B/E, as well as the upcoming reduction of the maximum amount of insured deposits. The maximum will drop from Bt50 million to Bt1 million in August 2012, in accordance with the DPA.
In terms of its capital base, as of September 2011, TISCOB reported Tier 1 and total capital ratios of 9.88% and 14%, respectively, down from 11.29% and 15.23% in 2010. The drops were mainly the result of the expanding loan portfolio. Although the bank’s total capital ratio was lower than the industry average of 15.40%, it remained sufficient and above the minimum requirement of 8.5% set by the Bank of Thailand (BOT). TISCOB has utilized the Basel II Internal Ratings Based (IRB) approach to calculate the regulatory-mandated amount of capital needed based on credit risk. The bank has also established the Internal Capital Adequacy Assessment Process (ICAAP). These processes could help the bank improve the efficiency of its risk management and capital management activities in the future, said TRIS Rating. -- End