TRIS Rating Affirms Company & Senior Debt Ratings and Outlook of “AYCAL” at “A+/Stable”

TRIS Rating has affirmed the company and senior debenture ratings of Ayudhya Capital Auto Lease PLC (AYCAL) at “A+” with “stable” outlook. The ratings reflect an enhancement from AYCAL’s stand-alone rating as it is a core strategic subsidiary of its parent company, Bank of Ayudhya PLC (BAY). BAY is rated “AA-” with “positive” outlook by TRIS Rating. AYCAL is BAY’s core subsidiary in the automobile hire purchase business, which strongly supports BAY’s universal banking platform. AYCAL’s stand-alone rating is based on the company’s strong market position in the automobile and motorcycle hire purchase businesses, experienced management team with a proven track record, and its rigorous risk management system. However, these strengths are partially offset by an intense competition in automobile and motorcycle hire purchase businesses which may pressure AYCAL’s business expansion, financial performance, and asset quality in the future. The “stable” outlook reflects the expectation that AYCAL’s business direction will continue to closely align with BAY Group’s business strategy, and the company will continue to get strong support from BAY. The outlook also considers the ability of the management team to sustain strong market position in the auto and motorcycle hire purchase businesses. With experienced management, rigorous risk management system, and strong support from BAY, TRIS Rating expects the company would be able to improve the financial performance and strengthen the capital base to be in line with other large-sized operators.

AYCAL became BAY’s wholly-owned subsidiary in February 2008. AYCAL’s total loans and receivables as of June 2013 accounted for 25% of BAY’s consolidated loans. Net income of AYCAL for the first half of 2013 contributed 43% to BAY’s consolidated net income for the same period. Business and financial supports from BAY are expected to further enhance AYCAL’s market position in its core businesses and improve its financial flexibility. AYCAL is one of the subsidiaries getting priority from BAY’s financial supports, as reflected in the proportion of outstanding amount of lending from BAY to AYCAL at 62% of BAY’s total lending to subsidiaries as of June 2013.

AYCAL is a sole subsidiary for BAY’s auto loan business, under the name “Krungsri Auto”. The company provides hire purchase financing for the purchase of new cars, used cars, and motorcycles, and also renders secured personal loans services through auto sales and lease back. The company is the second largest among 16 auto hire purchase operators in TRIS Rating’s database, with Bt219 billion of outstanding loans as of June 2013, representing about 14% market share. Also, the company is the largest motorcycle hire purchase operator among 10 large motorcycle hire purchase operators in TRIS Rating’s database, having outstanding loans of Bt8.4 billion as of June 2013.

With 20 years of experience in the industry, AYCAL has developed a proficient management team and strong business platform, which have enabled the company to successfully compete and maintain the leadership position. AYCAL has applied the risk management model from its parent company’s practice, which in turn is supported by BAY’s strategic shareholder, GE Capital International Holdings Corporation (GECIH). In addition, both AYCAL and BAY are regulated under the same standard criteria set by the Bank of Thailand (BOT). Due to prudent credit risk management and an efficient collection system, AYCAL’s asset quality continues to improve. Non-performing loans (NPLs), defined as loans with more than three months past due to average loans, decreased from 1.89% at the end of 2011 to 1.25% at the end of 2012 and 1.22% as of June 2013.

Profitability of AYCAL significantly improved in 2012 after slightly declining in 2011 due to the flood impact in the fourth quarter of 2011. The company’s net income rose to Bt4,750 million in 2012 from Bt3,150 million in 2011 (almost flat from Bt3,103 million in 2010). Return on average assets (ROAA) and return on average equity (ROAE) also increased to 2.68% and 27.14%, respectively, in 2012 from 2.32% and 22.66% in 2011. As loans expanded, the shareholders’ equity to total asset ratio declined to 9.80% at the end of 2012 from 10.01% in 2011. The level of AYCAL’s capital is lower than other hire purchase operators’ rated by TRIS Rating. However, strong financial support from BAY has enhanced AYCAL’s financial liquidity and flexibility.

For the first half of 2013, AYCAL’s financial performance declined from the same period last year, due to higher operating expenses and higher provision for bad debts and doubtful accounts. Net income was Bt1,871 million, down by 18% from Bt2,283 million for the first half of 2012. Non-annualized ROAA and ROAE, therefore, were 0.87% and 8.99%, respectively, down from 1.41% and 14.03%. The shareholders’ equity to total asset ratio also declined to 9.60% at the end of June 2013.

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