The “stable” outlook reflects the expectation that FSCT will be able to maintain its important role in the savings cooperative movement in Thailand. In addition, FSCT’s internal funding base, provided by its members, is expected to be maintained. FSCT is expected to deliver solid operating performance, leading to satisfactory returns for its members. The credit upsides are limited, given the gradually growth of savings cooperatives movement. In contrast, any changes, such as a shift to more aggressive operating policies, any regulatory changes that reduce the privileges for savings cooperatives or the importance role of FSCT in the savings cooperatives movement, might negatively affect FSCT’s rating.
FSCT was established in 1972 at the initiative of the Cooperative League of Thailand (CLT) and 81 savings cooperatives. According to the Cooperatives Act, FSCT is a secondary savings cooperative. Primary savings cooperatives are members of FSCT. Currently, in terms of both asset size and number of members, FSCT is the largest of nine savings cooperative federations in Thailand. FSCT receives all the tax exemption privileges that all primary savings cooperatives enjoy. FSCT provides financial services for its members, including taking deposits and providing loans. In addition, FSCT plays an important role in the savings cooperatives movement at a national level. FSCT is involved in numerous activities to support, promote, plan for, and develop savings cooperatives in Thailand.
Loans made to cooperative members were the largest portion (62.7%) of FSCT’s total assets at the end of December 2014. Loans to cooperative members ranged between 58%-66% of total assets during the past five years. About one-third (32.5%) of FSCT’s total assets was investments and the remainder (4.8%) was cash and other assets. FSCT has a policy to provide loans for its members and non-members, but loans will be provided to members first if there is a greater demand. At the end of December 2014, loans made to cooperative members amounted to Bt44,779 million. FSCT provided loans to only 272 cooperative members, out of a total of 1,042 members at the end of December 2014. As a result, FSCT is exposed to concentration risk from the loans it has made to cooperative members. The 20 largest loans made to cooperative members comprised 50.3% of total loans at the end of fiscal year (FY) 2009, or 31 March 2010, but only 35.5% at the end of December 2014. Despite the drop, the current level is considered relatively high. However, FSCT’s loan concentration risk is mitigated by the high quality of its loan portfolio.
At the end of December 2014, FSCT had only Bt8.6 million of non-performing loans (NPLs), accounting for only 0.02% of outstanding loans. FSCT’s good loan quality stems from the automatic repayment mechanism which comes with each loan and the legal privileges provided to primary savings cooperatives. FSCT has also strict underwriting criteria and guidelines for the loans it grants. According to an internal massive fraud of a major credit union, FSCT has no direct transaction with this trouble credit union. However, at the end of December 2014, FSCT has provided Bt4,728 million of loans to 15 savings cooperatives members that have transactions with such credit union. This exposure was 10.6% of FSCT’s total outstanding loans. All 15 accounts are currently classified as normal loans.
During the past few years, FSCT faced difficulties in raising funds through its members, both in terms of deposits and P/N. Deposits and P/N rose by only 1.6% in FY2011, 5.6% in FY2012, and 1.9% in FY2013, compared with annual rises of over 10% during FY2008-FY2010. FSCT has raised a substantial amount of funds through borrowings from commercial banks during FY2011-FY2013. Borrowings climbed from Bt7,825 million at the end of FY2008 to Bt15,665 million at the end of FY2013, accounting to 32% of
total liabilities or 25% of total assets. Despite the portion of borrowings from commercial banks dropped to 27% of total liabilities at the end of December 2014, the ratio remained relatively high. All commercial bank borrowings were short-term borrowings. In TRIS Rating’s view, wholesale funding through financial institutions carries a higher rollover risk for FSCT than using deposits and borrowings from cooperative members as its sources of funding. A higher proportion of external short-term funding brings refinancing risk and liquidity risk for FSCT. The risk is especially high during times of adverse change in the savings cooperatives system or the economy. In addition, more short-term funding means FSCT has a wider negative maturity gap between its assets and liabilities. At the end of December 2014, approximately 30% of FSCT’s total assets were long-term assets, mostly long-term investments without any mechanism to adjust the interest rate. FSCT thus carries interest rate risk to a certain extent.
In terms of deposits, FSCT has no deposit at the trouble credit union. However, at the end of December 2014, FSCT has Bt2,923 million in deposits from 30 savings cooperative members that have transactions with such credit union. The exposure amount was 9.4% of FSCT’s total deposits as of December 2014. At the same time, FSCT had Bt6,355 million in high liquid assets, in the forms of cash or deposits at banks and short-term investments, at the end of December 2014, which was considered enough to mitigate liquidity risk from the exposure. In addition, FSCT has been able to raise its deposits from Bt23,113 million at the end of FY2013 to Bt31,147 million at the end of December 2014.
The rise in the overall spread boosted profitability. Net profit continuously rose from Bt543 million in FY2010 to Bt913 million in FY2013. The ratio of return on average assets (ROAA) improved from 1.1% in FY2010 to 1.5% in FY2013, while the ratio of return on average cooperative’s equity (ROAE) improved from 5.8% in FY2010 to 7.3% in FY2013. FSCT raised the dividend yield for its cooperative members from 5.2% in FY2010 to 5.6% in FY2013.
FSCT’s paid-up share capital has increased continuously. As required by FSCT’s by-laws, cooperative members need to purchase additional shares in proportion to the paid-up share capital they own. In a normal situation, FSCT’s paid-up share capital is expected to increase continuously as the paid-up share capital of each cooperative member will increase automatically, thanks to the traditional mechanism of monthly share purchases by members. FSCT’s paid-up share capital rose substantially from Bt6,257 million in FY2009 to Bt9,211 million in FY2010, due to an extra share purchase made by one cooperative member in FY2010. After the extra share purchase, FSCT’s paid-up share capital increased by 2%-6% per year during FY2011-FY2013. FSCT’s paid-up share capital was Bt10,283 million at the end of FY2013. Cooperative’s equity, including paid-up share capital, legal reserves, reserves mandated by its by-laws, unrealized gains or losses from its investments, and net profit, has also increased steadily. Cooperative’s equity rose from Bt7,708 million at the end of FY2009 to Bt12,805 million at the end of FY2013. FSCT’s ratio of cooperative’s equity to total assets has held at around 20% during the past eight years. However, this ratio is considered low. Other large, long-established savings cooperatives have a ratio of around 40%.
The Federation of Savings and Credit Cooperatives of Thailand Ltd. (FSCT)
Company Rating: A-
Rating Outlook: Stable