Profits of leasing and hire-purchase stocks will likely decline in second half this year because of the possibility that interest rate ceilings for credit card and personal loans will be lowered and asset quality risks will rise due to lockdown measures, according to SCB Securities (SCBS).
SCBS expects the second-quarter earnings of consumer loan companies to recover from the same period last year, with net profits stable compared with the first quarter.
There will be little impact from the third wave of the pandemic on the sector in the first half this year, the research said.
"However, we see downside risks to earnings in the second half this year from the Bank of Thailand's prospective cut of the credit card and personal loan interest rate ceiling, as well as higher asset quality risks due to lockdown measures," the research stated.
Muangthai Capital Plc (MTC) is a recommended flagship stock for a non-bank company with a business related to consumer finance because MTC will be least affected by the downside risks from the two factors. The company has a low percentage of loans in the provinces under lockdowns, SCBS stated.
An analyst for Asia Plus Securities said leasing businesses are already in fierce competition for lending rates. Most of the personal loan providers already charge interest rates below the ceiling, so lowering the ceiling is unlikely to have as large an impact on such firms as it will for commercial bank credit cards, said the analyst.
According to a sensitivity analysis, for every 1% yield reduction Ngern Tip Lor Plc's (TIDLOR) net profits will drop by 18.3%, MTC by 12.8%, Aeon Thana Sinsap Thailand (AEONTS) by 9.2%, and Srisawad Corporation (SAWAD) by 7.0%, the analyst said.
UOB Kay Hian Securities research said decreasing the interest rate ceiling may not be easy because the central bank already lowered the ceiling on certain types of loans by 2-4% last year. The burden is expected to fall on state-owned specialised financial institutions to pilot the interest rate reduction, in accordance with government policy.
Credit card operators are more likely to feel the pinch of a lower interest rate ceiling because most of them offer rates close to the ceiling, said UOB.
The central bank must consider inflation risk and devise a control measure if the interest rate remains low for a long time, said the research.