TRIS Rating Co., Ltd. has affirmed the company rating of Siam Commercial Leasing PCL (SCBL) at “A+” and has also affirmed the rating of SCBL’s guaranteed debentures at “AA”. The outlooks for both ratings remain “stable”. The company rating is based on the continued business and financial support received from its parent, Siam Commercial Bank PCL (SCB). The rating is enhanced from the standalone rating of SCBL to reflect the strategic importance of SCBL to SCB’s auto loan business. Although SCBL’s core business policy changed in early 2008, the ratings are supported by sufficient cash inflows from monthly loan installments retained by SCBL to service its own debt obligations. In addition, the ratings are based on the assumption that there will be no capital reduction or unusual dividend payment which would erode SCBL’s strong capital base as the loan portfolio is winding down. However, these strengths are partially offset by an uncertainty in political situation, which might constrain the company’s asset quality and cause losses on repossession.
The guaranteed debenture ratings reflect the credit profile of SCB as the 99.12% shareholder of SCBL and the guarantor for SCBL’s debentures. SCB’s credit profile is supported by its strong market position as the fourth largest commercial bank in Thailand with a strong operating branch network nationwide, improving financial and business performance, and its sound and experienced management team. SCB’s credit profile, however, is partly constrained by intensifying competition in the banking industry, particularly in retail financing businesses, which might limit the bank’s overall growth prospects and profitability.
The “stable” outlook for SCBL’s company rating reflects the status of SCBL as SCB’s important entity, as well as strong business and financial support from SCB. The outlook takes into consideration that SCBL will maintain a strong capital base during the portfolio winds down. In addition, any changes in the relation of SCBL to SCB, including ownership and support, could affect SCBL’s rating. The “stable” outlook for SCBL’s guaranteed debenture ratings reflect the likelihood that SCB will deliver a medium-term financial performance as expected, and will be able to keep its leading market position in its core businesses and to control its asset quality efficiently as planned. The bank’s good risk management system, proven track record, and strong capital fund will support its business growth and help mitigate unexpected risks in the future.
TRIS Rating reported that with a century of experience in the banking industry, SCB has developed a proficient management team and universal banking platform that has enabled the bank to compete in this very competitive industry. SCB’s centralization of the management and control system has been settled to benefit the overall group’s business control and cost efficiency, while the capacity strengthening of its branch and subsidiary network nationwide has enhanced the group’s market position in its core businesses. The bank has a good mix in its loan portfolio. Total consolidated loans as of June 2010 were Bt971,467 million, growing by 7% from June 2009. Of the total, 39% were retail loans (including mortgage loans, credit card loans, auto-mobile hire purchase loans and personal loans), 39% corporate loans, 18% small and medium enterprise (SME) loans and 4% special assets. SCB was one of the top-five auto financing operators, with a market share of about 8% of total consolidated hire purchase outstanding balance of Bt764 billion in 2009 for the 20 large-sized operators in TRIS Rating’s in-house database.
TRIS Rating said, as SCBL’s business policy changed, new retail auto loans have been placed on the books of SCB since the second quarter of 2008 and SCBL has acted as the auto loan servicer for 60-day-plus delinquent accounts, both for SCB and its existing accounts. As a result, SCBL’s outstanding loans decreased continuously from a peak of Bt81,298 million at the end of March 2008 to Bt26,219 million at the end of June 2010. Financial support from SCB has been a major source to finance the existing loan portfolio. Since 2008, more than 80% of total borrowings have been funded from SCB. At the end of June 2010, of the total Bt15,695 million in borrowings, 98% were from SCB and the remaining 2% were from public debentures. The shrinkage of its loan portfolio has strengthened SCBL’s capital base. The ratio of shareholders’ equity to total assets improved from 12.8% at the end of March 2008 to 16.2% in 2008, 29.7% in 2009 and 38.3% at the end of June 2010.
During the business transition period, SCBL’s non-performing loans (NPL), including terminated contracts, surged to 5.9% of adjusted average loans in the third quarter 2008, up from 2.5% at the end of 2007. The ratio improved to 4.2% and 4.1% at the end of 2008 and 2009, respectively. Although SCBL’s NPLs decreased from Bt2,251 million at the end of 2009 to Bt1,872 million at the end of June 2010, the smaller loan portfolio caused the NPL ratio to increase to 5.3% at the end of June 2010. However, the parent bank’s efficient risk management system is expected to mitigate any downside risk and be able to control SCBL’s asset quality, in order that the existing loan portfolio will generate sufficient cash flow to service the remaining debt obligations. In addition, maintaining a strong capital base as the portfolio is winding down provides an additional cushion against probable asset quality deterioration, in event that there is not a significant capital reduction and/or unusual dividend payment, said TRIS Rating. -- End