TRIS Rating Co., Ltd. has assigned “BBB+” rating for the proposed issue of up to Bt5,500 million in senior debentures of Krungthai Card PLC (KTC). At the same time, TRIS Rating has affirmed the company rating and the ratings of KTC’s current senior debentures at “BBB+”. The outlook remains “stable”. The proceeds from the proposed debentures will be mostly used for refinancing and adjusting its financing structure. 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 Krung Thai Bank PLC (KTB), holding a 49.45% stake in KTC as of 2 April 2009. The ratings are 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 expectation that KTC will continue to receive both financial and business support from KTB. The outlook also reflects KTC’s current ability to access the capital market, fulfil its funding plan by securing more credit lines from other non-affiliated financial institutions, and continue to maintain a stringent credit policy. However, any weaken financial performance deviated from expectation could lead to a pressure on the ratings.
TRIS Rating reported that KTC’s short-term liquidity gradually improved as the company was able to issue long-term debentures totalling Bt9,180 million during May-August 2009. Long-term debt constituted 80.2% of total debt at the end of August 2009, a substantial increase from 54.89% at the end of May 2009. As of August 2009, KTC had Bt18,030 million in available credit from KTB and Bt4,010 million from other financial institutions. The level of available credit has substantially improved since May 2009, when the company had only Bt3,200 million in available credit from KTB and Bt3,510 million from other financial institutions. However, financial support from KTB is limited by regulatory lending limits. Regulations cap lending to KTB’s consolidated companies. Any future allocation of credit to consolidated companies in the KTB Group will be subjected to review and approval by KTB.
TRIS Rating said, KTC continues to maintain a strong market position in credit cards. In terms of the number of cards issued, KTC had 12.5% market share as of July 2009, down slightly from 12.7% as of December 2008. However, the management team has become more conservative with the balance sheet. The conservative policy is suitable under unfavourable external conditions and uncertain availability of fund from the capital market. KTC’s loan portfolio is expected to be flat or decline in 2009. Maintaining good asset quality is a major challenge during an economic slowdown. To mitigate the deterioration in asset quality, KTC’s management team implemented several measures in 2008, including more stringent credit criteria and collection policy. KTC is also striving to increase the credit card spending of high-end customers.
As of June 2009, KTC had total loan receivables of Bt49,001 million, a 3.1% decrease from Bt50,587 million in 2008. Total receivables comprised credit card loans (73%), personal loans (24%), self-employed loans (2%), and circle loans (1%). KTC reported a net profit of Bt202 million during the first half of 2009, a 36% decrease from Bt318 million in net profit during the same period in 2008. This drop was mainly due to an increase in loan loss provisions and the extra income from VISA Inc. totaling Bt114 million received in 2008. Provisions rose to Bt2,025 million in the first half of 2009 from Bt1,476 million in the same period of 2008. Excluding the extra income, the profitability ratios slightly declined in 2009. Return on average assets (ROAA) and return on average equity (ROAE) were 0.4% and 3.2% for the first half of 2009, compared with 0.5% and 4.0% for the same period in 2008.
The delinquency rate and net charge-off rate kept increasing. As of June 2009, KTC’s overall delinquency rate (loans with more than 90 days past due) was 4.6%, up from 4.2% in December 2008. The increase in delinquency rate was the result of a higher portion of overdue credit card receivables. In addition, the net charge-off rate increased from 5.5% in 2007 to 6.3% in 2008 and 3.7% (non-annualized) for the first half of 2009. KTC’s ratio of total allowances for possible loan losses to total loans continued to increase, rising from 3.84% in 2007 to 4.54% as of June 2009. The increase in provision expense was the result of a deterioration in asset quality and more stringent provisioning criteria for the personal loan and the self-employed loan portfolio. Since the last quarter of 2007, provisions for personal loans have been based on historical data of actual losses for three years plus future factors that reflect the forecasted economic environment. This provision policy is substantially different from a previous method which was a fixed rate of 2% of outstanding personal loans for less than 180 days past due. In the second quarter of 2009, KTC revised the provision policy of self-employed loans to reserve 100% of the outstanding loans over 90 days past due. This new provisional level resulted in additional Bt30.17 million of provisional expenses for the second quarter of 2009, said TRIS Rating. -- End