KTC was established in 1996, as a wholly-owned subsidiary of KTB, to run the bank’s credit card business on behalf of KTB. In 2002, in order to operate more efficiently as a separate consumer finance company, KTB transferred its credit card portfolio to KTC and listed KTC on the Stock Exchange of Thailand (SET). As a company in the KTB Group, KTC continues to utilize the bank’s nationwide branch network as one channel to expand its client base. Over one-fourth of KTC’s new clients have been obtained through this channel over the last few years. KTC also receives financial support from KTB. It has a credit line from KTB worth Bt18,030 million, which remained unutilized as of December 2013.
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 was 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 proportion of its overall borrowings. While KTC relies on borrowings from financial institutions and the debt market as its main funding sources, its commercial bank competitors have access to a relatively cheap source of funding from deposits. KTC’s high funding cost partly offsets the strength of its franchise and makes it difficult for KTC to compete more aggressively and increase its market share.
After the flood crisis at the end of 2011, KTC decided to bring debt collection back in-house, under its full control. The company has also put more emphasis on pre-delinquent collections. Efficiency has improved significantly, as evidenced by a reduction in non-performing loans (NPLs). Credit card NPLs (over 90 days past due) declined from 5.3% of gross receivables in the first quarter of 2012 to 2.2% at the end of 2013. Similarly for personal loans, the NPL ratio declined from 4.7% in the first quarter of 2012 to 1.5% at the end of 2013. Despite the drop in NPLs, the net charge-off rate rose to 7.3% in 2013, up from 4.9% in 2012. The rise was partly due to a tighter provisioning policy. The ratio of the allowance for doubtful accounts to NPLs rose to 293% at the end of 2013, up from 195% at the end of 2012. KTC increased the allowance for possible loan losses in order to prepare the company for any potential adverse change in the operating environment.
KTC spent most of 2012 streamlining its operations and setting costs under control. KTC started aggressive marketing efforts in the last quarter of 2012. As a result, revenues started to grow in 2013 after remaining stagnant since 2008. KTC reported a record profit in 2013. Excluding extraordinary items related to the sale of a long-term investment, KTC’s net profit in 2013 jumped to Bt1,037 million, compared with Bt255 million in 2012. Administrative expenses in 2013 declined sharply to Bt5,274 million, compared with Bt6,565 million in 2012. The cost saving efforts and an information technology (IT) investment project undertaken in 2012 started to pay off in 2013, with the benefits likely to carry through the coming years. In addition, the ramp up of provisions for credit card reward points were largely completed in 2011 and 2012, resulting in a much lower burden from 2013 onwards. The major efficiency improvement in 2012 and the abundant reserves from its conservative provisioning policy should enable KTC to maintain its profitability over the next few years. One looming regulatory change regarding the way interest is charged on credit card receivables may affect KTC’s profits. Such risk and its estimated effect on profitability have been incorporated in KTC’s current credit ratings.
A huge operating loss in 2011 substantially weakened KTC’s equity base. Its debt to equity ratio rose to 8.8 times at the end of 2011, pushing its leverage closer to the covenant limit of 10 times. Theimproved operating results in 2012 and 2013 helped raise KTC’s equity base, lowering the debt to equity ratio to 7.5 times at the end of 2013. Given KTC’s modest dividend payout policy and future prospects, TRIS Rating expects KTC’s equity base to return to the pre-2011 level soon. However, the potential growth in KTC’s portfolio may lead to more borrowings and put some pressure on its leverage ratio.
Krungthai Card PLC (KTC)
Company Rating: BBB+
Issue Ratings:
KTC148A: Bt1,800 million senior debentures due 2014 BBB+
KTC14OA: Bt6,000 million senior debentures due 2014 BBB+
KTC158A: Bt3,200 million senior debentures due 2015 BBB+
KTC15OA: Bt1,000 million senior debentures due 2015 BBB+
KTC165A: Bt2,000 million senior debentures due 2016 BBB+
KTC168A: Bt1,000 million senior debentures due 2016 BBB+
KTC168B: Bt2,200 million senior debentures due 2016 BBB+
KTC174A: Bt500 million senior debentures due 2017 BBB+
KTC17NA: Bt5,000 million senior debentures due 2017 BBB+
KTC188A: Bt800 million senior debentures due 2018 BBB+
Up to Bt12,000 million senior debentures due within 2020 BBB+
Rating Outlook: Stable