Fitch Upgrades AEONTS National Long-Term Rating to #A-(tha)

Stocks and Financial Services Press Releases Friday April 22, 2016 16:51
Bangkok--22 Apr--Fitch Ratings

Fitch Ratings (Thailand) has today upgraded Aeon Thana Sinsap (Thailand) Public Company Limited's (AEONTS) National Long-Term Rating to 'A-(tha)' from 'BBB+(tha)'. The Outlook is Stable. The National Short-Term Rating has been affirmed at 'F2(tha)'.

The National Long-Term Rating has been upgraded because AEONTS has successfully shown it can sustain financial metrics generally superior to in 2011-2012 despite the weak operating environment since then. The Outlook was previously Positive to reflect AEONTS' gradual improvements in key financial ratios.

KEY RATING DRIVERS
NATIONAL RATINGS

AEONTS' National Ratings are driven by its standalone profile, which is underpinned by its position as one of the leading non-bank players in Thailand's unsecured consumer loan sector. AEONTS has a long-standing franchise in credit cards and personal loans, and operates an extensive network of 120 branches nationwide. AEONTS benefits from ordinary support from its parent company, Aeon Financial Services Company Limited, which has considerable expertise in consumer lending in Japan.

AEONTS has been able to lower leverage and maintain capitalisation over the past two years, aided by sound internal capital generation and slower growth. Other buffers such as reserve coverage remain reasonable, and the company has maintained sound profitability despite adjusting its risk appetite to account for the weaker operating environment. That said, pressure on delinquencies has been evident due to the weak economy, but this has been in line with Fitch's expectations and with overall sector trends. Thailand's muted economic growth and high levels of household debt are limiting factors on AEONTS' asset quality and performance.

AEONTS is not a depository corporation and relies on wholesale funding, rendering it potentially vulnerable to dislocation in funding markets. Nevertheless, compared to other non-bank financial institutions, AEONTS has relatively diversified funding sources with extensive banking relationships with both Japanese banks (likely extending from its parent's relationships with those banks) and non-Japanese banks, and a history of access to capital markets (through both senior and structured issuance).

The ratings also take into consideration significant competition in this sector from commercial banks, which is likely to affect AEONTS' potential growth and market share.
RATING SENSITIVITIES

An upgrade could be driven by material and sustained improvements in capitalisation and asset quality, combined with no increase in risk appetite. However, further upside to the ratings appears unlikely in the short term, especially in light of the prevailing operating environment.

Meanwhile, downside to the ratings could arise if AEONTs' risk appetite materially increased leading to actual or potential erosion in buffers in terms of capitalisation and reserve coverage, as well as a sharp increase in delinquencies. A material and sustained decline in performance could also lead to negative rating action.


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