Tris Rating has affirmed TSFC Securities Plc at BBB- with a stable outlook, reflecting its improving market share, efforts to diversify business lines, better profitability, adequate asset quality, low leverage and adequate liquidity. The rating is constrained by the company's exposure to market volatility and limited profitability because of higher likely interest rates and intense competition.
Tris expects TSFC, the sole company licensed by the Finance Ministry to provide securities financing, including margin loan refinancing, loans against pledged securities and securities repurchase agreements, will maintain its market share in credit balance financing at the current level for the next few years. The company's total credit balance financing was 3.57 billion baht, or a 5.3% market share at the end of August 2018.
In an effort to diversify from retail margin lending, TSFC has started to offer various kinds of brokers' loans, such as loans to brokers for margin transactions (LBMT), securities repurchases, and block trade financing to act as a liquidity provider for brokerage firms, which is its main corporate mission.
TSFC's profitability has gradually improved over the years because of lower funding costs and operating expenses. The ratio of operating expenses to total income declined to 36% in September 2018 from increasing revenues and lower overhead expenses. As a result, the company's return on average assets improved to 2.2% in September 2018, and the return on average equity was 5.6%.
Tris expects TSFC to continue to control the credit risk of its margin loans by strictly enforcing and maintaining its stringent criteria on marginable stock grading. As a result of the company's risk management system, TSFC's non-performing loan ratio has declined over the years to 6.9% in September 2018.
In addition, TSFC's leverage remains low and it has adequate liquidity. Its debt-to-equity ratio was 1.5 times at the end of September 2018, with a sufficient equity base of 1.73 billion baht. Its ratio of liquid assets, comprising cash and investment in securities, to total assets was 4% at the end of September 2018.
Yet TSFC's reliance on short-term borrowings as a major source of funds poses another credit constraint as it exposes the company to both refinancing and market risk. Similarly, TSFC relies on interest income as its major source of revenue, with interest on margin loans comprising 91.8% of total revenues in September 2018.
