Tris Rating Remains Unchanged for 'Muangthai Capital' with 'BBB+' and 'Stable' Outlook

The company rating and unsecured debentures of Muangthai Capital Company Limited remain at 'BBB+' with a 'Stable' outlook. This credit rating reflects the leadership status in the personal loan business with collateral and the company's strong capital base. The credit rating also mirrors the ability to generate good profits, quality assets, diversified funding sources and sufficient liquidity. However, the credit rating is under pressure from the potential impact on asset quality and the financial status due to the COVID-19 pandemic, causing severe economic downturns.

Key Determinants:

Leadership in collateralized personal loan business

The rating agency anticipates that the company will maintain its leadership status in the collateralized personal loan business in the medium term. It is believed that the company will continue to enhance its expertise in operations while expanding its branch network and customer base. As of March 2020, the company's outstanding loans increased by 24% compared to the same period last year, reaching 627 billion baht. Moreover, the company opened more than 800 additional branches in the past year to cover a larger area and expand its customer base, totaling 4,294 branches as of March 2020 compared to 3,279 branches at the end of 2019. The company aims to reach a branch network of 4,700 branches within 2020.

Maintaining a strong capital base, prudent debt management and robust profit generation

Tris Rating expects that the company's capital structure will remain robust over the next 2-3 years, with an average risk-adjusted capital ratio of around 24% over a 5-year period. They believe that the company's accumulation of capital from consistent profits and cautious dividend policies will continually strengthen its capital base. Therefore, they anticipate the company will be able to meet key financial conditions, maintaining a debt-to-equity ratio of not more than 4 times. They estimate this ratio to be around 3 times in the next 2-3 years by the end of March 2020. As of that time, the company had risk-adjusted capital ratios and debt-to-equity ratios at 22.7% and 2.9 times, respectively.

The company's ability to generate sufficient profits is likely to support its capital sustainability, debt servicing and consistent profit generation. The rating predicts that the company's revenue and profit-making ability in the year 2020 will be somewhat limited, even with measures to assist debtors affected by the COVID-19 pandemic. They forecast that the average 5-year risk-adjusted pre-tax return on risky assets of the company will be around 7.9%. However, they believe the company will maintain its profit-making ability in the next 2-3 years through efficient financial cost management and operational expenses.

The asset quality is expected to remain favorable.

Tris Rating predicts that the company's asset quality might weaken due to the slowing economy, stemming from the impact of the COVID-19 pandemic. Nonetheless, the rating assesses that the weakened asset quality remains manageable and will have limited implications on the company's risk profile. The rating agency anticipates that the company will continue its stringent lending policies and efficient debt collection processes to control potential future defaults. It is projected that approximately 10% of outstanding credits may directly bear the brunt of the sluggish economic conditions caused by the spread of COVID-19. These debtors primarily consist of factory workers and individuals associated with the tourism industry.

Nevertheless, the rating agency expects the company to maintain its target ratio of non-performing loans (overdue payments exceeding 90 days) at below 2%. As of March 2020, the ratio of non-performing loans of the company slightly increased to 1.2% from 1.0% in 2019, partly due to changes in the standards of classifying debts following the adoption of TFRS 9. However, this ratio remains relatively low compared to competitors in the same industry.

The rating further anticipates that the company will uphold its provisioning policy against credit deterioration, aiming for approximately 200% coverage for the next 2-3 years. As of March 2020, this ratio had adjusted downwards to 201% from 275% in 2019 due to reversing the provisions for credit impairment resulting from the adoption of TFRS 9.

Adequate Capital Sourcing and Liquidity Position.

The rating agency assesses that the company will have sufficient capital sourcing and liquidity for the next 12 months, considering its stable capital adequacy ratio at 169%. However, the average liquidity coverage ratio remains weak at 0.1 times over a 2-year period. The company's access to debt and equity markets, as well as credit facilities from financial institutions, signifies diverse funding sources supporting its capital and liquidity position. As of March 2020, the company had a credit facility from financial institutions totaling 1.7 trillion baht, with 50% of the amount yet to be utilized. Additionally, the company retains the option for emergency credit from the Government Savings Bank to reinforce liquidity, especially to assist debtors during the COVID-19 pandemic. These funding sources aim to alleviate the pressure on cash flows and company yields.

Basic Assumptions Scenario

The basic assumptions scenario for the operating results of companies during the years 2020-2022 are as follows:

• Outstanding loans expected to grow at a rate of 15%-20%.
• The Net Interest Margin at approximately 18%.
• The proportion of non-performing loans is expected to remain below 2%.
• The Coverage Ratio is expected to remain at approximately 200%.

Credit rating trends.

The 'Stable' outlook reflects the forecast that the company will be able to maintain its market position, including satisfactory operational performance, control asset quality and maintain an acceptable capital-to-risk ratio.

Factors that may change credit ratings

The possibility of an imminent increase in credit ratings and/or credit rating trends is limited. However, credit ratings and/or trends may be adjusted upwards if the capital-to-risk ratio exceeds 25%, while financial performance remains consistently strong with an average return on risk-weighted assets of over 8%. Conversely, credit ratings and/or trends may be downgraded if asset quality or the company's ability to generate profits deteriorates significantly, leading to a weak capital position and increased borrowing risk to service existing debts or increased liquidity risks.

Related Credit Rating Criteria:

• Credit rating criteria for non-bank financial institutions, February 17, 2023

Company: Muangthai Capital Public Company Limited (MTC)

Corporate Credit Rating: BBB+

Debt Securities Credit Ratings:

MTC217A: Unsecured debentures, no collateral, 1,200 million Baht, maturity 2021, BBB+

MTC222A: Unsecured debentures, no collateral, 1,650.30 million Baht, maturity 2022, BBB+

MTC227B: Unsecured debentures, no collateral, 2,043.30 million Baht, maturity 2022, BBB+

MTC22NB: Unsecured debentures, no collateral, 2,349.70 million Baht, maturity 2022, BBB+

MTC237A: Unsecured debentures, no collateral, 1,756.70 million Baht, maturity 2023, BBB+

Unsecured debentures, no collateral, up to 6,000 million Baht, maturity within 4 years, BBB+

Credit Rating Outlook: Stable

Tris Rating Co., Ltd. / www.trisrating.com

Contact: santaya@trisrating.com Tel. +662-098-3000 Silom Complex Building, 24^th Floor
191 Silom Road, Bangrak, Bangkok 10500 Thailand