SUMMARY
We maintain a stable credit outlook on non-bank financial institutions (NBFIs). Strong capital and well-managed liquidity and asset quality have thus far helped underpin NBFIs? ratings. Performance of NBFIs in the first half of 2021 (1H21) has been relatively satisfactory, largely in line with our 2021 forecasts. Year-to-date (YTD) loan growth for most leasing and title loan operators in 1H21 was decent. In 2H21, we expect loans to grow at a decelerating pace in 3Q21 due to city lockdowns, then rebound in 4Q21 as the vaccination rate ramps up and businesses gradually resume operations.
Overall, asset quality has been surprisingly well preserved considering the extremely weak credit environment, partly helped by debt relief support for borrowers and lenders? tighter underwriting policies since 2020. Loan yields have been pressured by the reduction of interest rate ceilings as well as pricing competition and lower effective interest rates due to debt relief measures. Nonetheless, declining funding costs and extra income from insurance brokerage have helped support overall profitability.
Unsecured lending (credit card and personal loans)
? Outstanding loans contracted during 1H21, both credit card and personal loans. This was due to the slowdown in credit card spending and lenders? stricter credit extension policies.
? Various debt relief measures helped keep asset quality at healthy levels, with the NPL ratio for credit cards still at 1% and personal loans in the 2%-3% range. Credit costs in 1H21 declined from 2020, while the allowance for Eastern Commercial Leasing PLC (ECL) remained at a high level.
? Overall profitability was supported by declining funding costs, despite pressure on loan yields from reduced interest rate ceilings.
? Strong capital remains the key credit strength of credit card businesses.
Auto leasing
? YTD loan growth has been reasonably strong with upbeat momentum early in the year. The motorcycle segment experienced negative growth YTD, however, due to the cautiousness of lenders.
? Asset quality deteriorated gradually from the end of 2020 for most lenders, with NPL formation creeping up slowly, except for ECL and Mida Leasing PLC (ML).
? Loan yields have stabilized or declined only marginally. With cost of funds still on a declining trend, loan spreads remain firm. Losses on sales of repossessed vehicles have narrowed for most lenders due to the recovery of used car prices, on the back of stronger demand and limited supply. Asset repossession may have slowed down to some extent, helped by debt mediation programs.
? Most companies, especially smaller leasing companies, maintain solid capital.
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Title loans
? YTD loan growth for title loan operators was generally stronger than other segments of NBFI, led by Singer Thailand PLC (SINGER) with 30% growth YTD. Muangthai Capital PLC (MTC) also reported robust growth (12% YTD) as branch expansion continues. Loan growth of Ngern Tid Lor Co., Ltd. (NTL) was partly offset by a portion of customer prepayments, resulting in a moderate growth of 7%.
? NPL formation was stable or down for most lenders, aided by debt relief support.
? Loan spread declined for most, except for MTC and NTL that managed to maintain loan spread, thanks to stable yields and funding costs. Fees from insurance brokerage generated extra income for lenders.
? Most lenders? capital ratios are at the ?very strong? level.