TRIS Rating has affirmed the company rating of BSL Leasing Co., Ltd. (BSL) at “BBB” with “stable” outlook. The rating reflects the company’s experienced management team, acceptable risk management practices, and its good asset quality. The rating also incorporates the recent improvement in BSL’s performance and the financial support it receives from its major shareholders. However, these supporting factors are partly offset by the lack of an extensive network to service customers outside the central Bangkok area and the limits imposed on the financial support BSL can received from its major shareholder, Bangkok Bank PLC (BBL). The limits might constrain BSL’s growth and financial flexibility. The “stable” outlook is based on TRIS Rating’s expectation that BSL will continue obtaining financial support from its major shareholders, while continuing to diversify its funding sources. The outlook also takes into account the expectation that the management team will be able to maintain the asset quality of its assets and deliver the financial performance in line with TRIS Rating’s expectations.
BSL was established in 1985 as a joint venture between BBL, including companies owned by and affiliated with BBL, and Sumitomo Mitsui Banking Corporation (SMBC) in Japan. BSL was established to provide industrial equipment financing services and vehicle financing services under lease and hire purchase contracts. BSL entered the factoring business in 2004. Currently, BSL’s major shareholders are BBL, holding a 35.88% stake, the SMBC Group (40%), and JA Mitsui Lease (10%). Both BBL and SMBC Group provide support to BSL in terms of credit facilities and some level of business referrals. In late 2013, BSL signed a business cooperation agreement with JA Mitsui Lease. The agreement calls for both firms to find and introduce customers to each other as well as provide advice when negotiating with customers. It will take time to see if the business cooperation effort is successful and if it helps enhance the company’s position and performance. In 2012, BSL was ranked sixth place among 10 equipment financing companies in TRIS Rating’s database. BSL’s loan portfolio increased from Bt5,255 million in 2011 to Bt6,366 million in 2012. The portfolio has continued rising, reaching Bt6,867 million in 2013. BSL’s business is concentrated, as it operates only in the Bangkok Metropolitan Area (BMA). Only the head office provides services. Larger financial institutions are typically more geographically diversified than BSL. The limited geographic coverage area limits BSL’s potential customers to Bangkok and the nearby provinces.
Net revenue (adjusted for net operating lease revenue) of BSL was Bt460 million in 2012. Net revenue increased to Bt542 million in 2013, as the loan portfolio grew. The company reported a net profit of Bt201 million in 2013, leaping 58.27% from the level in 2012. As a result, the return on average equity (ROAE) and the return on average assets (ROAA) were 16.05% and 2.71% in 2013, respectively, improving from 11.60% and 2.09% in the prior year. BSL’s financial performance improved in 2013 due to a wider interest spread and cost control. However, the current economic slowdown will pose a challenge as BSL strives to sustain or improve its financial performance.
BSL efficiently manages the residual risk of its leased assets. Through efficient management, BSL has consistently generated substantial amounts of non-interest income. The prices of used cars have been affected by the government’s recent tax incentive scheme for first-time car buyers. BSL has been able to maintain its gains on the sale of the leased assets. Gains from the sale of previously-leased (residual) assets were Bt29 million in 2011, Bt24 million in 2012, and Bt19 million in 2013.
BSL’s assets are of good quality. The ratio of non-performing loans (NPLs, loans overdue for more than three months) to total loans was 1.76% in 2011 and rose slightly to 1.83% in 2012. In 2013, the NPL ratio dropped to 0.71% due mainly to a huge write-off which came at the end of litigation. BSL’s NPL ratio is relatively low compared with peers. However, during the current economic slowdown, TRIS Rating will closely monitor the company’s asset quality. If BSL’s asset quality deteriorates, its financial performance will be affected.
BSL and BBL must comply with a regulation that limits the amount of loans that a commercial bank may provide to a related company. A related company is one in which a bank holds more than 10% of the outstanding shares and less than 50% of the total shares. The total amount of the loans made to a related company must not exceed 5% of the lender’s capital funds or 25% of the borrower’s total liabilities, whichever is lower. This regulation has constrained BSL’s financial flexibility. In the past, BSL relied heavily on borrowings from BBL. Since 2009, BSL has diversified its funding sources to other financial institutions as well as the capital market. BSL began issuing bills of exchange (B/E) in 2010 and issued Bt500 million in senior debentures in 2011 and issued US$20 million in the first tranche of a Shogun issue in August 2012. BSL issued tranche two for the same amount in July 2013. As of December 2013, 11.79% of BSL’s total liabilities of Bt6,827 million were borrowings from BBL, while 10.77% was from SMBC, respectively. BSL’s available credit lines are sufficient to finance its current short-term liquidity gap. The steady cash flows BSL receives from the customers’ monthly installments give the company additional liquidity. BSL has secured a credit line from BBL as a last resort, if additional liquidity is needed.