TRIS Rating Co., Ltd. has assigned the rating of “A-” to the proposed issue of up to Bt2,000 million in senior debentures of Krungthai Card PLC (KTC). At the same time, TRIS Rating has affirmed the company rating of KTC and the ratings of its existing senior debentures at “A-”. The outlook remains “stable”. The ratings reflect KTC’s capable management team and efficient operating system that help sustain its solid market position in the credit card business. The ratings also take into consideration the strong support from a major shareholder, Krung Thai Bank PLC (KTB). However, these strengths are partially constrained by intense competition, unfavorable business factors, and regulatory risk, which might affect future expansion and profitability.
KTC’s “stable” outlook reflects TRIS Rating’s expectation that the company will be able to maintain its strong position in the credit card business, despite an unfavourable operating environment. KTC is also expected to be able to keep delinquency rate of its loan portfolio at 4%-5%. The company’s sufficient capitalization plus good operational systems and sufficient risk management systems are expected to help mitigate any future downside risk arising from adverse changes in the business environment.
TRIS Rating reported that KTC continues to maintain its strong market position in credit cards. In terms of the number of cards issued, KTC had 12.4% market share as of June 2008. However, changing business conditions have limited KTC’s loan portfolio growth and profitability. These conditions include tighter regulations to qualify credit cardholders and the minimum repayment required, an interest rate cap for personal loans, the economic slowdown and lower consumer confidence, and stronger provisioning criteria. As of December 2007, KTC had total loan receivables of Bt44,922 million, a 12.0% increase from Bt40,126 million in 2006. Loan receivables as of June 2008 increased 3.7% from the end of 2007 to Bt46,575 million. As of June 2008, the receivables comprised credit card loans (70%), personal loans (26%), self-employed loans (3%), and circle loans (1%).
KTC reported net profit of Bt318 million during the first six months of 2008, a 13.8% increase from the same period in 2007. The non-annualized return on average equity (ROAE) during the first six months of 2008 was 5.33%, up from 4.90% during the same period in 2007. At the same time, the non-annualized return on average assets (ROAA) marginally increased from 0.65% for the first six months of 2007 to 0.68% for the same period in 2008. Despite the better year-on-year performance due to an expanding loan portfolio, the delinquency rate kept increasing. As of June 2008, KTC’s overall delinquency rate (loans more than 90 days past due) was 4.2%, up from 3.8% in December 2006. The rise was a result of two reasons: an increase in the number of past-due self-employed loans, and the strategy to diversify the loan portfolio by expanding ratio of personal loans. Normally, personal loans generate a greater rate of return but carry higher risk. KTC’s ratio of total allowances for possible loan losses to total loans increased from 2.51% in 2006 to 3.84% in 2007 and 3.83% as of June 2008 to match the increased delinquency rate. Because the loan portfolio expanded, leverage weakened. The equity to asset ratio dropped from 13.64% in 2006, to 12.96% in 2007, and fell further to 12.7% as of June 2008. The equity to total loan ratio also dropped from 14.17% in 2006 to 13.25% in 2007, and then sank to 12.80% as of June 2008. The debt to-equity ratio also reflected the increase in leverage, rising from 5.94 times in 2006 to 6.33 times in 2007 and 6.54 times as of June 2008.
KTC’s financial flexibility and liquidity are considered adequate. As of June 2008, KTC’s funding came from both financial institutions and the debt market. The funding structure comprised 39% short-term borrowings, 31% long-term borrowings (including syndicated loans), and 30% debentures. In addition, KTC has a committed credit line of Bt13.03 billion from KTB, which enhances its financial flexibility. As of June 2008, the outstanding loan balance at KTB was Bt1.95 billion, or 15.0% of the total available credit. The utilization rate at KTB is kept low as KTC maintains these committed lines as a funding source of last resort, said TRIS Rating. -- End