TRIS Rating Co., Ltd. has affirmed the ratings of Krungthai Card PLC (KTC) and its senior debentures at “BBB+”. At the same time, TRIS Rating has withdrawn “CreditAlert” with “developing” implication from KTC’s ratings, and has placed “stable” rating outlook instead. These actions have been taken after TRIS Rating had a discussion with management of KTC and Krung Thai Bank PLC (KTB), a major shareholder, regarding the funding plan of KTC. Although KTB’s ownership in KTC will not increase from 49.45% as KTC’s shareholders did not approve right offering fund raising, TRIS Rating believes that KTC will continue to get financial support from KTB.
The ratings reflect KTC’s capable management team and efficient operating system, which help sustain its solid market position in the credit card business. The ratings also take into consideration the strong support from KTB, holding 49.45% stake in KTC as of 2 April 2009. The ratings are also limited by intense competition, an unfavorable operating environment, and regulatory risk, which might affect future expansion, asset quality, and profitability.
The “stable” outlook is based on an expectation that KTC will continue to receive both financial and business support from KTB. The outlook also reflects KTC’s current ability to access capital market, and fulfil its funding plan by securing more credit lines from diverse financial institutions. However, failure to rollover bills of exchange without success to secure other sources of funding or its significant weakened financial performance could lead to a pressure on the ratings. TRIS Rating will closely monitor KTC’s available credit facilities though it is currently sufficient to fund its exposure in bills of exchange.
TRIS Rating reported that as the global financial crisis has made investors being more risk aversion, which caused difficulty for KTC to roll-over its bills of exchange, KTC then relied more on funding source from KTB. In March 2009, KTB granted Bt5 billion additional credit facility to KTC to be Bt18 billion of total credit lines. As of 4 May 2009, KTC had Bt3.2 billion of available credit lines from KTB and Bt2.96 billion from other financial institutions to support its short-term liquidity. However, financial support from KTB is limited by regulatory lending limits to the bank’s consolidated companies and future allocation of credit facilities to consolidated companies within KTB Group will be subjected to KTB’s consideration.
KTC continues to maintain a strong market position in credit cards. In terms of the number of cards issued, KTC had 12.7% market share as of December 2008, a slight increase from 12.3% as of December 2007. However, unfavourable external conditions and uncertain funding sources from capital markets caused management to be more conservative on managing KTC’s balance sheet. Therefore, KTC’s loan portfolio is expected to be flat or decline in 2009. Maintaining good asset quality is a major challenge during economic slowdown. To mitigate deterioration in asset quality, KTC’s management team implemented several measures in 2008 including more stringent credit criteria and collection policy, and planned to increase the credit card spending from high-end customers.
As of December 2008, KTC had total loan receivables of Bt50,587 million, a 12.6% increase from Bt44,922 million in 2007. Total receivables comprised credit card loans (71%), personal loans (26%), self- employed loans (2%), and circle loans (1%). Though KTC reported net profits of Bt520 million for 2008, considered flat compared with 2007, it was lower than TRIS Rating’s expectation, due to an increase in loan loss provision to Bt3,288 million in 2008 from Bt2,539 million in 2007. KTC’s profitability ratio was relatively flat, as return on average assets (ROAA) and return on average equity (ROAE) were 1.1% and 8.6% in 2008, respectively, compared with 1.2% and 9.0% in 2007.
TRIS Rating said, the delinquency rate has kept increasing. As of December 2008, KTC’s overall delinquency rate (loans more than 90 days past due) was 4.2%, down from 4.3% in December 2007, but the net charge-off rate increased from 5.5% in 2007 to 6.3% in 2008. 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 3.81% as of December 2008 to match the increased delinquency rate and the new provisioning standard. The increase in provisional expenses was the result of a deterioration in asset quality and a more stringent provisioning criteria for personal loan portfolio. Since the last quarter of 2007, provisioning for personal loans has based on 3-year historical data of actual losses plus future factors that reflect the forecasted economic environment, changed from 2% of outstanding loans with less than 180 day past due. -- End