Tisco Financial Group, a holding company of Tisco Bank, plans to focus on what it considers two businesses related to S-curve industries: auto title loans and corporate banking.
A mixed strategy between high-yield loans and a low-risk business should contribute better returns with acceptable downside probability for the group, said group chief executive Sakchai Peechapat in an exclusive interview with the Bangkok Post.
Auto title loan growth
Mr Sakchai said Tisco has offered auto title loans for 16-17 years, growing the business in terms of both loan portfolio and revenue.
The group set an ambitious goal to expand auto title loans outstanding to 100 billion baht under its five-year business plan covering 2023-27.
Tisco operates an auto title lending service through its subsidiary Hi-Way Co under the brand Somwang Ngern Sang Dai. Somwang's total loan portfolio numbers around 40 billion baht.
"This year Tisco expects double-digit auto title loan growth, quadrupling new branch numbers from past years. This aggressive plan should enable Somwang to accomplish its ambitious goal," he said.
The expansion strategy calls for Somwang to open 200 new branches nationwide each year, up from 500 existing outlets. Prior to the pandemic, the company opened 50 branches per year, increasing to 100 new branches in 2022, in line with positive loan demand in the segment.
The maximum number of Somwang branches in the plan is 1,200-1,500, with the company considering a suitable number based on economic conditions, said Mr Sakchai.
The growth target for the auto title loan business would support the company's interest income amid a trend of rising interest rates, he said.
Interest rates
Given the trend of interest rate hikes, the Bank of Thailand has continued to increase its policy benchmark rate from a historic low of 0.5% to 1.75% at present.
The central bank's policy rate is expected to reach a terminal level of around 2-2.50% for this cycle, said Mr Sakchai.
Among the financial subsidiaries of Tisco Group, Tisco Bank generates the largest income proportion, which is mainly attributed to auto hire-purchase lending, the bank's core business. With a fixed interest rate for auto loans, the bank's interest income has suffered as rates rise, with that impact expected to continue until the end of this year.
Higher interest rates for auto title loans compared with auto hire-purchase loans would support the bank's bottom line and the net profit of Tisco Financial Group, he said.
The group reported to the Stock Exchange of Thailand (SET) its net profit for the first quarter of 2023 was 1.79 billion baht, down by 0.2% year-on-year, attributed to the rising cost of funds as interest rates increase. For the period, auto loans stumbled by 0.7% from the end of last year.
Regulatory risk
Mr Sakchai said new regulations from the Office of the Consumer Protection Board (OCPB) on ceiling interest rates of auto hire-purchase loans could affect some small businesses in this segment.
According to the OCPB's new rules for car and motorcycle hire-purchase contracts, there is a low ceiling rate for new car loans of 10% per year, and an average fixed rate of 5.5% per year. For used car loans, the ceiling rate is 15%, while the fixed rate is 8.5% annually.
In addition, the auto title loan business is expected to be supervised by the central bank from the third quarter this year. The new rules could mean higher costs for compliance for smaller businesses in the segment, he said, in addition to increasing financial costs as interest rates rise.
"In this scenario, some operators may exit from the market, leading to merger and acquisition [M&A] deals," said Mr Sakchai.
"Tisco is interested in such deals, but we have not seen M&A signals yet."
The auto title loan market should become more standardised and stronger under the new regulations, in terms of both fair prices and market conduct, he said.
The rules should improve financial inclusion and provide customers better access to loans at reasonable interest rates, said Mr Sakchai, attracting underbanked customers who largely turn to loan sharks to borrow.
Even with fierce competition, there is room to grow the auto title loan market, he said.
There are around 2 million vehicles under auto title loan contracts, while the total number of cars and motorcycles in the market is around 20 million units of each.
Digital development
In line with Somwang's plans to open more brick-and-mortar branches over the next few years is an omni-channel approach, striving to build trust in the customer experience, said Mr Sakchai.
Some clients are familiar with technology and the digital channel is more comfortable for them, he said.
"We set up a main lab developing and testing digital financial services," said Mr Sakchai.
"Innovative financial services and products will gradually be implemented."
Somwang's loan approval via its digital platform continues to increase.
Digital loans make up around 20% of the company's total applications for loan products, and should increase as the digital era advances, he said.
Somwang's aggressive growth target over the next five years means the total auto loan structure of Tisco Bank is likely to change. For example, the share of electric vehicle (EV) loans to auto title loans should increase, while petrol-based new car loans should decline, reflecting market trends and customer demand, said Mr Sakchai.
The company expects its new car loans will be based on the country's annual new car sales, roughly at 5% of the total auto loan portfolio, he said, while the EV ratio will be around 10%.
The EV loan proportion increased significantly to 20% last year, supported by market trends and the company's partnership strategy, said Mr Sakchai.
Wholesale loans
Tisco expects double-digit growth of wholesale loans this year from current outstanding loans of 46 billion baht. Syndicated loans and total solutions are the key strategies to grow this segment, he said.
Given rising interest rates, corporate loans would benefit from using floating interest rates, which contribute better interest income for the company, said Mr Sakchai.
Normally the business segment generates a narrower interest margin because of the low risk compared with other loan customers. Given the lower risk, Tisco Bank can reserve a higher provision for expected credit loss, he said.
According to SET data, Tisco Financial Group had no non-performing corporate loans in the first quarter of this year. In addition, the company reported a solid loan-loss coverage ratio of 248%.
"The ratio is the industry's highest level," said Mr Sakchai.
"The strong and sufficient cushion provides a buffer to handle risk and unexpected situations."
Virtual bank licence
Tisco is not interested in the central bank's new virtual bank licence scheduled for issuance in the third quarter this year.
Tisco Bank focuses mainly on secured loan products, while virtual bank operators are expected to concentrate on unsecured loans and helping the underserved market, he said.
In addition, the company emphasises asset quality amid the country's fragile economic recovery and a high household debt-to-GDP ratio garnering more attention, said Mr Sakchai.
There is a government effort to build up the wealth of Thais as the nation becomes an ageing society, with the majority of residents recording meagre savings for their retirement, he said.
The Bank of Thailand requires minimum registered capital for a virtual bank of 5 billion baht, which is a large amount for Tisco, said Mr Sakchai. If Tisco were to operate a virtual bank business, it would take a long time to generate a return, he said.
