Know your know-how
Sakchai Peechapat, CEO of Tisco Financial Group.
Tisco Financial Group plans to leverage its expertise in auto lending and wealth management to expand its business once the pandemic is under control, managing director Sakchai Peechapat told the Bangkok Post in an exclusive interview.
Car lending is the group’s core business under Tisco Bank, which is 100% owned by Tisco Financial Group. Auto purchase loans represent 56.2% of the bank’s total loan portfolio.
Combined vehicle loans covering auto loans and automobile title loans represent 71% of the bank’s outstanding loans.
Auto loan borrowers are a key segment that has been hit hard by the Covid-19 epidemic. He said Tisco management looked after this segment better in the second and third waves, compared to the first wave.
Helping clients restructure their debt is an important solution, said Sakchai, who was appointed to the group’s most senior position on March 31 of this year. Another option is a debt haircut for those who qualify, he said.
Hair cuts needed
Corporate debt restructuring takes many forms. Tisco offered debt discounts to auto loan customers this year before the Bank of Thailand authorized the method as part of the third phase of debt restructuring for auto loan borrowers, Sakchai said.
A debt haircut refers to an asset used as collateral for a loan that is worth less than market prices.
He said the haircut option paves the way for auto loan customers to escape the burden of their debt while maintaining their credit history with the National Credit Bureau.
The debt haircut also gives car buyers the ability to borrow again when they are ready, while helping the bank to contain nonperforming loans (NPLs), Sakchai said.
“After offering the discount option to car loan customers for 2-3 months, we did not find any moral hazard problem. Customers eligible for this option must have a good payment record”, a- he declared.
Tisco sets a quota for requests for a haircut, in accordance with the bank’s provisions on loan losses. Thousands of auto loan customers were eligible this year, and hundreds of borrowers have participated in the program, Sakchai said.
The bank reduces the remaining debt to 50,000 baht per customer after the car auction.
Lower rate cap
The central bank has had discussions with financial institutions about lowering the ceiling interest rates for certain types of consumer loan products, including auto title loans. If the regulator implements such a measure, it will not have a significant impact on Tisco Bank, Mr Sakchai said.
On average, the Tisco Bank interest rate for auto securities is 12-14% per annum, while the current central bank rate cap is 20%.
However, lowering the cap rate could affect some auto securities lending providers, especially small non-bank businesses, he said. Such a reduction would create a higher credit risk, especially during a pandemic, and increase the rejection rate of their loan products, Sakchai said.
These rejections could cause some borrowers to seek loan sharks, who offer unreasonable interest rates, so the regulator should carefully consider this issue, he said.
Access to liquidity is more important than pricing in today’s environment, Sakchai said. As a result, the central bank should balance financial inclusion and help borrowers reduce their financial costs. The lower cap rate could be offered to some targeted borrowers, he said.
The finance ministry and central bank have implemented targeted measures under the debt restructuring program so far, Sakchai said.
Improved investment options
In addition to debt restructuring, Tisco wants to help deposit clients achieve better returns on savings and investment products. Savings accounts were offering tiny interest rates even before the pandemic.
He said Tisco’s depository customer base is largely made up of the top income segment, with an average monthly income of 100,000 baht. Most of his lending clients are in the low-income segment, earning around 8,000 to 10,000 baht per month, Sakchai said.
For depositors, the number of clients opening new mutual fund accounts increased dramatically during the outbreak. For the first five months of this year, new mutual fund accounts operated under Tisco Asset Management have grown 8-10% from the end of last year.
Most new clients want to invest in offshore markets for better returns, in line with the global economic recovery, he said.
Tisco plans to pay more attention to the capital market and wealth management activities in the second half of this year. The group offers a full range of financial services, including savings, investing, insurance protection and financial planning for retirement, Sakchai said.
Financial advisory services are also expected to contribute to Tisco’s fee income, he said. The group’s fee income currently accounts for 30% of total revenue and could increase to 35-40% in the near future depending on the market situation, Mr Sakchai said.
Tisco Financial Group is developing several digital platforms in response to customer demand. The platforms focus on Tisco’s areas of expertise in auto credit and wealth management.
The group has upgraded the Tisco Mobile Banking application, planning to rename it myWealth. The upgraded app has additional features with a focus on financial advice.
Tisco has also developed a new digital platform called Freedom which offers a financial advisory service to clients of the funds.
The group’s digital vehicle platform, named Pegasus, provides a full range of automotive-related services to automotive and motorcycle loan customers, including digital loans. The platforms are expected to be phased in in the third quarter of this year, he said.
“Digital platforms are open to both deposit and loan customers, which should give them better access to financial products and services, especially those in remote areas.
Mergers and Acquisitions
With higher credit risk, the upward trend in non-performing loans, and increasing loan loss provisions to manage the impact of the pandemic, some small non-bank auto lenders are struggling to survive , did he declare.
Some of these operators may be open to business partners, a joint venture, or even for sale, Mr Sakchai said.
“This scenario could occur over the next 1-2 years, and Tisco is open to a merger and acquisition strategy due to our strong capital base and strong cushion,” he said.
In the first quarter of this year, Tisco set aside additional loan loss reserves to deal with the third wave outbreak, as well as its debt discounts to contain NPLs. In March, its coverage rate was high at 222%. The group’s BIS ratio base was 22%, while Tisco Bank was at 22.8%. The BIS ratio compares a bank’s capital and its risk-weighted position.
However, Mr Sakchai said the bank is not considering joining the tender for Citibank Thailand’s credit card business because unsecured loans are not its area of expertise.