Tisco Financial Group plans to leverage its expertise in auto lending and wealth management to grow its businesses once the pandemic is controlled, chief executive Sakchai Peechapat told the Bangkok Post in an exclusive interview.
Auto lending is the group's core business under Tisco Bank, which is 100% owned by Tisco Financial Group. Auto-hire purchasing loans represent 56.2% of the bank's total loan portfolio.
Combined vehicle lending covering auto loans and car title loans represent 71% of the bank's outstanding loans.
Auto loan borrowers are a key segment that have been heavily affected by the Covid-19 outbreak. He said Tisco's management has provided better care to this segment during the second and third waves, compared with the first wave.
Helping customers with debt restructuring is one important solution, said Mr Sakchai, who was appointed to the group's top post on March 31 this year. Another option is a debt haircut for those who qualify, he said.
Haircuts needed
The firm's debt restructuring takes several forms. Tisco offered debt haircuts to auto loan customers this year before the Bank of Thailand allowed this method under the third phase of debt restructuring for auto loan borrowers, said Mr Sakchai.
A debt haircut refers to an asset being used for collateral for a loan that is given a value below market prices.
He said the haircut option paves the way for auto loan customers to escape their debt burdens, while maintaining their credit record with the National Credit Bureau.
The debt haircut also gives car buyers an opportunity to borrow again when they are ready, while helping the bank to contain non-performing loans (NPLs), said Mr Sakchai.
"After offering the haircut option to auto loan customers for 2-3 months, we've not found a moral hazard problem. Clients eligible for this option must have a good payment record," he said.
Tisco sets a quota for applications for the haircut, in line with the bank's loan-loss provisions. Thousands of auto loan customers were eligible this year, and hundreds of borrowers participated in the programme, said Mr Sakchai.
The bank cuts the remaining debt by up to 50,000 baht per client after the car is auctioned.
Ceiling rate cut
The central bank held discussions with financial institutions about a ceiling interest rate cut for some types of consumer loan products, including car title loans. If the regulator implements such a measure, it would not impact Tisco Bank significantly, said Mr Sakchai.
On average, Tisco Bank's interest rate for car titles is 12-14% per year, while the central bank's current ceiling rate is 20%.
However, a ceiling rate cut could affect some car title loan providers, especially the small non-bank companies, he said. Such a reduction would create higher credit risk, especially during a pandemic, and increase the rejection rate for their loan products, said Mr Sakchai.
These rejections could cause some borrowers to seek loan sharks, which offer unreasonable interest rates, so the regulator should consider this issue carefully, he said.
Access to liquidity is more important than pricing in the current environment, said Mr Sakchai. As a result, the central bank should balance financial inclusion and helping borrowers to cut financial costs. The ceiling rate cut may be offered to some targeted borrowers, he said.
The Finance Ministry and the central bank have implemented targeted measures under the debt restructuring programme properly thus far, said Mr Sakchai.
Improved investment options
In addition to debt restructuring, Tisco wants to help deposit clients get better returns on savings and investment products. Savings accounts have offered minuscule interest rates even before the pandemic.
He said Tisco's deposit customer base is largely made up of the upper income segment, with average monthly income of 100,000 baht. Most of its loan clients are the lower income segment, earning around 8,000 to 10,000 baht per month, said Mr Sakchai.
For depositors, clients opening new mutual fund accounts increased significantly during the outbreak. For the first five months this year, new mutual fund accounts operating under Tisco Asset Management posted growth of 8-10% from the end of last year.
Most of the new customers want to invest in offshore markets to receive a better return, in line with the global economic recovery, he said.
Tisco plans to pay more attention to the capital market and wealth management business in the second half this year. The group offers a full range of financial services including savings, investment, insurance protection and financial planning for retirement, said Mr Sakchai.
Financial advisory services should also contribute to Tisco's fee-based income, he said. The group's fee income represents 30% of total revenue currently and could increase to 35-40% in the near future depending on the market situation, said Mr Sakchai.
Digital platforms
Tisco Financial Group is developing several digital platforms in response to customer demand. The platforms focus on Tisco's expertise areas of vehicle lending and wealth management.
The group upgraded the Tisco Mobile Banking app, planning to rename it myWealth. The upgraded app has additional features with an emphasis on financial advisory.
Tisco also developed a new digital platform called Freedom that offers financial advisory service to fund clients.
The group's vehicle digital platform, named Pegasus, provides a full range of auto-related services to car and motorcycle loan customers, including digital lending. The platforms are scheduled for a gradual launch in the third quarter this year, he said.
"The digital platforms are open to both deposit and loan customers, which should offer them better access to financial services and products, in particular those who are in remote areas. They should increase the country's financial inclusion overall," Mr Sakchai said.
Mergers and acquisitions
Given the higher credit risk, rising trend of NPLs and increased loan-loss provisions to handle the impact of the pandemic, some small non-bank auto lenders are struggling to survive, he said.
Some of these operators may be open to business partners, a joint venture, or even selling out, said Mr Sakchai.
"This scenario could happen in the next 1-2 years, and Tisco has been open to a merger and acquisition strategy because of our solid capital base and strong cushion," he said.
In the first quarter this year, Tisco set aside additional loan-loss reserves to cope with the third wave outbreak, as well as its debt haircuts to contain NPLs. As of March, its coverage ratio was high at 222%. The group's BIS ratio base was 22%, while Tisco Bank was at 22.8%. BIS ratio compares a bank's capital and its risk-weighted position.
However, Mr Sakchai said the bank has no plans to join the bidding for the credit card business of Citibank Thailand because unsecured loans is not its area of expertise.