The "stable" outlook reflects the expectation that KTC will maintain its market position and asset quality by maintaining its strict collections and underwriting policies and maintaining the current level of leverage. TRIS Rating also expects that KTB will continue to provide financial support and business support to KTC as a strategically important member of the KTB Group.
The credit upside case would materialize if KTC can deliver better-than-expected financial performance and strengthen its financial profile while controlling its credit cost amidst a weak economy and challenging competitive pressures in the consumer finance industry.
The credit downside is limited in the next 12-18 months. However, KTC's ratings or outlook could be revised downward should any factors appear that would significantly affect KTC's financial performance and credit profile, i.e., a narrower interest spread, higher operating expenses, or deterioration in asset quality.
KTB holds a 49.45% stake in KTC. KTC is considered as a strategic affiliate in KTB's universal banking platform. According to the Bank of Thailand's consolidated supervision regulations, KTC is an affiliate of KTB on a non-solo consolidation basis. As a strategically important member of the KTB Group, KTC continues to utilize the KTB's nationwide branch network for two purposes. The network serves as a channel for KTC to expand its client base and as a channel for payments and services. KTC also collaborates with KTB in its marketing campaigns. Over 40% of the new credit cards KTB issued in 2014 came through referrals from KTB, up from one-fourth over the last few years. KTC receives financial support from KTB in the form of a credit facility. KTC has a Bt18,030 million credit line from KTB, which remained unutilized as of June 2015.
After the flood crisis at the end of 2011, KTC decided to bring the debt collection function back in-house, under its full control. The company has also put more emphasis on pre-delinquent collections. As a result, efficiency has improved significantly, as evidenced by a reduction in non-performing loans (NPLs). Credit card NPLs (loans over 90 days past due) declined from 5.3% of gross receivables in the first quarter of 2012 to 1.7% at the end of 2014 and to 1.4% for the first half of 2015. The results are similar for personal loans. The NPL ratio (loans over 90 days past due) for personal loans declined from 4.7% in the first quarter of 2012 to 1.2% at the end of 2014 and to 1.0% for the first half of 2015. Despite the drop in NPLs, the charge-off rate rose from 7.4% in 2012 to 9.4% 2014 and 9% (annualized) for the first half of 2015. The rise was partly due to a tighter provisioning policy. As a result, the ratio of the allowance for doubtful accounts to NPLs rose to 393% at the end of June 2015, up from 364% at the end of 2014, and 195% at the end of 2012. KTC increased the allowance for possible loan losses in order to prepare the company for any potential adverse changes in the operating environment.
KTC spent most of 2012 streamlining its operations and getting costs under control. KTC started an aggressive marketing effort in the last quarter of 2012. As a result, revenues started to grow in 2013 after remaining stagnant since 2008. In 2013, KTC reported a net profit, excluding extraordinary items related to the sale of a long-term investment, of Bt1,037 million, compared with a net profit of Bt255 million in 2012. KTC reported a record profit of Bt1,755 million in 2014 and Bt1,039 million for the first half of 2015. The return on average assets (ROAA) improved to 3.8% (annualized) in June 2015, from 3.3% in 2014 and 2.5% in 2013. The ramp-up of provisions for credit card reward points was largely completed in 2011 and 2012, resulting in a much lower burden from 2013 onwards. The major efficiency improvementsmade in 2012, plus the abundant reserves from its conservative provisioning policy, should enable KTC to maintain its profitability over the next few years. One regulatory change is looming: the way interest is charged on credit card receivables. This change may affect KTC's profits. However, the consideration of the new regulations was suspended after the dissolution of Parliament in December 2013. As a result, the risk from the regulatory change has been delayed until deliberation resumes.
With its ability to access a diverse funding base, plus the financial support it receives from KTB, short-term liquidity is not a major concern for KTC. Its portfolio is funded by borrowings from many financial institutions, and by debentures with a range of maturities. No loan from a single financial institution represents a significant portion of its overall borrowings. KTC relies on borrowings from financial institutions and the debt market as its funding sources. Its commercial bank-backed competitors have access to a cheaper source of funding: bank deposits. However, the recent improvement in KTC's performance, plus the drop in interest rates during the past three years, reduced its funding cost from 5.0% in 2012 to 4.4% in 2014 and 4.1% (annualized) for the first half of 2015.
A huge operating loss in 2011 substantially weakened KTC's equity base. The debt to equity ratio rose to 8.8 times at the end of 2011, pushing this leverage measure closer to the covenant limit of 10 times. KTC's operating results have improved since 2012. The debt to equity ratio fell to 6.4 times at the end of 2014 and 6 times at the end of June 2015. KTC's equity base is expected to strengthen from modest dividend payout policy and future financial prospects. However, the KTC's growth plans may push borrowing higher and raise the leverage ratio.
Krungthai Card PLC (KTC)
Company Rating: A-
Issue Ratings:
KTC15OA: Bt1,000 million senior unsecured debentures due 2015 A-
KTC162A: Bt200 million senior unsecured debentures due 2016 A-
KTC165A: Bt2,000 million senior unsecured debentures due 2016 A-
KTC165B: Bt200 million senior unsecured debentures due 2016 A-
KTC167A: Bt200 million senior unsecured debentures due 2016 A-
KTC168A: Bt1,000 million senior unsecured debentures due 2016 A-
KTC168B: Bt2,200 million senior unsecured debentures due 2016 A-
KTC172A: Bt138 million senior unsecured debentures due 2017 A-
KTC174A: Bt500 million senior unsecured debentures due 2017 A-
KTC175A: Bt400 million senior unsecured debentures due 2017 A-
KTC175B: Bt100 million senior unsecured debentures due 2017 A-
KTC177A: Bt200 million senior unsecured debentures due 2017 A-
KTC177B: Bt500 million senior unsecured debentures due 2017 A-
KTC178A: Bt2,000 million senior unsecured debentures due 2017 A-
KTC178B: Bt200 million senior unsecured debentures due 2017 A-
KTC17DA: Bt130 million senior unsecured debentures due 2017 A-
KTC17NA: Bt5,000 million senior unsecured debentures due 2017 A-
KTC17OA: Bt400 million senior unsecured debentures due 2017 A-
KTC183A: Bt300 million senior unsecured debentures due 2018 A-
KTC187A: Bt1,120 million senior unsecured debentures due 2018 A-
KTC188A: Bt800 million senior unsecured debentures due 2018 A-
KTC188B: Bt4,000 million senior unsecured debentures due 2018 A-
KTC18NA: Bt550 million senior unsecured debentures due 2018 A-
KTC198A: Bt2,000 million senior unsecured debentures due 2019 A-
KTC259A: Bt1,000 million senior unsecured debentures due 2025 A-
Up to Bt5,492 million senior unsecured debentures due within 2021 A-
Up to Bt1,000 million senior unsecured debentures due within 2026 A-
Rating Outlook: Stable