TRIS Rating Co., Ltd. has assigned the company rating to BSL Leasing Co., Ltd. (BSL) at “BBB” with “stable” outlook. The rating reflects BSL’s experienced management team, acceptable credit and residual risk management, and financial support from the major shareholders. However, these factors are partly offset by a lack of a branch network to service customers outside the central Bangkok area, relative low capital funds compared with peers, and the potential limits to financial support from Bangkok Bank PLC (BBL). In addition, an unfavourable operating environment might limit profitability in the future.
The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to continue obtaining financial support from major shareholders, be able to retain existing major customers, and sustain recurring gains on sale of leased assets. The outlook also takes into account the expectation that management will be able to maintain good asset quality and keep funding rates in line with TRIS Rating’s expectation, despite unfavourable economic and business environments.
TRIS Rating reported that BSL was established in 1985 as a 50:50 joint venture between BBL and related companies (BBL Group) and Sumitomo Mitsui Banking Corporation, Japan (formerly known as Mitsui Taiyo Kobe Bank), to provide leasing and hire purchase financing services. BSL added the factoring business in 2004. A restructuring among some related parties in the BBL Group in 2005 caused Bank Thai PLC (as the successor after the restructuring) to hold a 10% stake in BSL, while the shareholding by the BBL Group fell to 40%. However, in December 2008, BBL bought back the whole 10% stake from Bank Thai, which indicates BBL’s intention to continue supporting BSL.
BSL ranked fifth out of 13 equipment leasing operators in TRIS Rating’s database in 2007. BSL’s loan portfolio substantially increased from Bt1,842 million in 2003 to Bt2,383 million in 2004, Bt3,828 million in 2007 and stood at Bt4,217 million as of September 2008. BSL has no branch network, but only a head office to provide services. This limits its potential customers to Bangkok and the nearby area, and causes the company to be less diversified than large financial institutions. Net revenue (adjusted for net operating lease revenue) ranged from Bt100-Bt300 million during 2003-2007 and the first nine months of 2008. The company delivered high returns on average equity (ROE) of 26.79% in 2006, 28.19% in 2007, and 19.20% (non-annualized) for the first nine months of 2008. One factor driving the high returns was its relatively low funding cost; most borrowings were short term. Efficient residual risk management was consistently generated substantial amounts of non-interest income from gains on sale of leased assets. These recurring gains constituted 22%-23% of net revenue, relatively high compared with the interest income received from BSL’s core businesses. The company has consistently recorded gains from sale of residual assets of Bt72 million in 2006, Bt73 million in 2007, and Bt61 million for the first nine months of 2008.
TRIS Rating said that on 3 August 2008, the Bank of Thailand released a series of revised regulations covering financial institutions. One regulation limits the amount of debt financing from a commercial bank to any related company to not over 5% of the lender’s capital funds or 25% of the borrower’s total liabilities, whichever is lower. The new regulation limits BSL’s financial liquidity and flexibility as the company has relied heavily on short-term borrowings from BBL. As of September 2008, 89% of the company’s total debt of Bt3,521 million was provided by creditors which are also shareholders.
BSL has good asset quality, even though it targets small- and medium-sized enterprises (SMEs), which are often vulnerable to adverse changes in the economy. The ratio of non-performing loans (overdue for more than three months) to average loans is relatively low compared with other customers rated by TRIS Rating. During the last five years, the ratio peaked at 3.47% in 2006, before gradually decreasing to 2.90% in 2007 and 2.82% as of September 2008. Maintaining good asset quality despite an expanding loan portfolio will be a challenge, as the credit profiles of BSL’s customer might be affected by the sharp slowdown of the Thai and worldwide economies, said TRIS Rating. -- End