Tris Rating has assigned BSL Leasing Co (BSL) a BBB rating based on the company's strong capital base, low leverage and financial support from its major shareholders.
Tris said BSL's capital base remains strong, partly because of a low dividend payout ratio, and is adequate to support the business plan for the next three years. As of December 2018, BSL's shareholders' equity saw an increase from the previous year and reached 2.08 billion baht, up from 1.86 billion in December 2017.
BSL's debt-to-equity ratio over the past five years has stayed relatively low compared with its peers. The ratio was 3.2 as of December 2018, compared with peers' average of about 10.
The leasing company has ample financial support from its major shareholders, Bangkok Bank Plc (BBL) and Sumitomo Mitsui Banking Corporation (SMBC). As of December 2018, BSL had an available credit line of 1.28 billion baht from BBL and 1.65 billion from SMBC.
But BSL does not rely heavily on borrowings from BBL, which in 2018 amounted for only 1.2% of BSL's total liabilities. The company has also diversified its funding sources by borrowing from other financial institutions, as well as raising funds through the capital market, such as the issuance of Shogun bonds valued at US$120 million during 2012-18.
Tris said financial support from major shareholders, as well as a range of funding sources, will let BSL maintain its operations and meet its debt obligations.
But these supporting factors are offset by BSL's weak asset quality, high borrower concentration, and asset-liability mismatch. In addition, intense competition will limit the company's interest income and profitability, which is expected to weaken during the next couple of years.
BSL saw its profits plunge because of a significant decline in asset quality during 2016-2017. However, net profits rebounded in 2018 and reached 270 million baht unaudited. The ratio of return on average assets increased to 3.2% in 2018 from 0.5% in 2017.
Tris said BSL's weak asset quality is because of high borrower concentration, with its top 10 clients accounting for 31% of the loan portfolio as of September 2018. Tris expects that asset quality to remain weak in 2019 as long as clients' non-performing loans (NPLs) remain unresolved.
Financial difficulties faced by a major client since 2016 attributed to an increase in BSL's NPL ratio, which stood at 8.6% at the end of September 2018. BSL made full provisions for the major account in 2017, so the company's performance will not likely be affected further, even if the loan of the major account becomes an NPL.
Excluding the effect from the major client, the NPL ratio of the company was 1.5% in September 2018, keeping BSL's overall asset quality at a satisfactory level.
In addition, BSL has a maturity mismatch in its asset-liability structure. The average loan duration is between 42 and 48 months, while BSL relies on short-term borrowing for funding needs. Nevertheless, the mismatch is not seen as a constraint, as the short-term borrowing can be rolled over. Also, BSL has sufficient credit from major shareholders to finance short-term liquidity gaps.
BSL's major shareholders are the SMBC Group (40%), BBL (35.9%) and JA Mitsui Leasing Ltd (10%). BSL has a sufficient credit line from BBL and SMBC.
The stable outlook is based on the expectation that BSL will receive financial support from its major shareholders and diversify its funding sources, in addition to the capital base and financial performance remaining strong enough to cushion against any deterioration in asset quality.
