Tris Rating downgraded the company rating on the insurance and loans company Ngern Tid Lor Co (NTL), and the ratings on NTL's outstanding senior unsecured debentures to A- from A, with a stable outlook.
The downgrade was based on Tris Rating's assertion that NTL's status as a strategically important subsidiary of Bank of Ayudhya Plc (BAY) lessened based on BAY's intention to reduce its equity stake in NTL to 50%.
The ratings continue to reflect the sustained improvements NTL has made in market position, financial performance and risk management practices. Tris said NTL has a strong brand name for secured personal loans, however a high level of competition in the consumer finance segment still constrains the ratings.
The ratings reflect the business and financial support NTL receives from its major shareholder, BAY.
Tris views BAY's intention to divest stake in NTL to 50% as implying NTL's standing will be lower compared with BAY's other wholly owned subsidiaries. The long-term commitment of BAY to NTL appears to have wavered as a result of a change in NTL's shareholder structure.
Despite the partial divestiture, Tris expects NTL will still receive adequate financial and liquidity support from BAY for its operations, and in case it should encounter a period of financial distress.
Tris predicts NTL to maintain its competitive edge and market position, with one-third of the market and as a top three player. NTL is the second-largest non-bank lender of secured personal loans, based on total outstanding loans of 36.4 billion baht at the end of the third quarter 2018.
Though the return on average assets (ROAA) will stay above 3.4%, Tris predicts net income will grow by more than 10% year-on-year through 2020.
The pressure for lower ROAA is the incorporation of an expected rise in borrowing costs and a shift to a higher-quality customer segment causing a drop in the interest rate earned on the loan portfolio.
Tris said the debt-to-equity (D/E) ratio for NTL will range from 4.1-4.3 times through 2020. NTL's leverage is higher than its peers, but still far lower than the cap of 6 times stated in debenture covenants. Tris expects BAY will help recapitalise NTL if the D/E ratio exceeds 5.5 times.
The stable outlook is based on Tris' expectation that NTL will maintain its market position and deliver a satisfactory performance, with loan quality controlled at an acceptable level.
Tris expects BAY to continue supporting NTL, especially through credit facilities and business support.
The ratings could rise if NTL improves its market position, keeps growing, continues to deliver strong financial performance, and controls credit costs at what is considered an acceptable level.
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