Tisco tides over car lending woes

Even though 2014 will likely end up as the worst year for Tisco Financial Group because of losses from used-car inventories, its revenue before reserves and return on equity are still healthy enough thanks to its risk-adjusted strategy, according to group chief Oranuch Apisaksirikul.

The ousted elected government’s first-car-buyer tax-incentive scheme provided the best ever risk-adjusted return for new-car lending, as reflected by small rates of non-performing loans. The scheme aggravated inventory losses because the government allowed delays in the delivery of ordered vehicles, resulting in an oversupply of used cars and lower value.

Before the launch of the first-car scheme in September 2011, annual car sales numbered 800,000-900,000, which is the same figure as in 2014, so this year’s sales figures mark a correction, she said.

Tisco has no plan to cut back on auto lending as this category gives the best return, but it is cautious on used cars even though prices have begun to stabilise.

"The bank is flexible enough to adjust its business model in line with consumer trends. This is one reason we can enjoy a return on equity of 16-17 per cent even though this year is Tisco’s worst," Oranuch said.

Used cars account for 17-18 per cent of auto loans, the majority portfolio at Tisco at 70 per cent.

Oranuch believes demand for new cars is continuing, and even though growth will not be as high as before, it will be driven by the trend of replacing vehicles once they are seven years old. This means the cycle of replacement will help carry on the auto-loan sector.

Used car demand has risen

As for used cars, the volumes in this category are bigger than for new cars but could decline as mass transit becomes more extensive, she added.

Tisco Financial enjoyed annual growth of 30 per cent in the past three years except this year, in which Oranuch acknowledged the group would face lower growth in line with the decline in auto sales.

When the economy rebounds, auto sales will normalise, but she noted that Tisco would not see the 30-per-cent growth figures of the past as they were supported by the first-car scheme.

Tisco’s annual loan growth should be around 10 per cent, she said, adding that consumer spending would recover from the government efforts to stimulate the economy through the state spending and infrastructure projects.

Household debt is likely to remain at a high level but the banking industry will limit lending to customers who have a debt-service ratio of 40 per cent.

"The picture of household debt looks less hazardous if we understand that the banking system has measures to control it," Oranuch said.

"We have to look for new markets to sustain our margin."