Banks with hire-purchase units take widely different paths to achieving performance improvement goal

Krungthai Bank recently injected Bt900 million into KTB Leasing as new capital to support loan expansion and reduce the unit’s dependence on borrowing from financial institutions. 

KTB Leasing now has registered capital of Bt1 billion.

KTB first senior executive vice president Kittiya Todhanakasem said that as KTB Leasing was expanding its lending portfolio, the bank had decided that the company should not seek funds in the form of borrowing from financial institutions, including from KTB itself. 

The debt-to-equity ratio at KTB Leasing will be reduced as a result, while the capital injection will help improve both the ratio and business expansion in the future, she said.

Kittaya added that the policy of KTB was that all subsidiaries must have more synergy with the bank. In the case of KTB Leasing, the portfolio size is still small and its profitability should be increased.

She made a comparison with the bank’s Krungthai Card unit, whose financial performance she said was impressive.

KTB Leasing has witnessed rising non-performing loans (NPLs) from hire-purchase business, a trend that is in line with the industry, she said. 

However, the bank believes the situation in the hire-purchase market is bottoming out, and that the prospects for hire purchase and leasing business are better.

A source at KTB Leasing added that the company previously provided used-car loans to customers in the southern provinces, but the fall in rubber prices had affected the ability of many borrowers to repay their debt.

CIMB Thai Bank, meanwhile, is attempting to increase the efficiency of its two wholly owned hire-purchase companies – World Lease and Centre Auto Lease – by undertaking their restructuring in phases, and also studying the possible business expansion of World Lease into Laos, for the provision of hire purchase for motorcycles, said CIMBT chief financial officer Narongchai Wongthanavimok.

Earlier, the bank said it was considering restructuring the two hire-purchase units, a task that he said was not easy to achieve in a short period of time.

CIMBT will, therefore, in the first phase send bank staff to support the accounting of the two companies, before the units undertake their own operational management.

The bank is also studying increased opportunities in Laos by leveraging World Lease to its first overseas branch in Vientiane, which was opened in August.

“Even though the population of Laos is small, we found that members of a household generally all have motorcycles, and not passenger cars. Furthermore, the financial behaviour of Laotians in buying vehicles has changed to lending from paying in cash,” said Narongchai.

“If we go there, we will provide hire purchase for Japanese motorcycles because of their high quality, and Laotians acknowledge that the quality of Chinese motorcycles is poorer than Japanese bikes,” he added.

Laotians have good financial discipline and the prices of motorcycles in the country are higher than in Thailand, which presents more of an opening to provide hire purchase, said the chief financial officer.

World Lease has a total loan portfolio of Bt3.8 billion, and an NPL rate of 3-4 per cent of outstanding lending, he said.