Tisco banks on risk management, niche marketing

Capital strong enough to support 12-15% annual loan growth, CEO says

Tisco Financial Group is confident its strategy for risk management and niche marketing is the right path towards making more efficient use of capital, even though its Tier 1 capital risk-weighted assets ratio is the lowest in the banking industry.

Chief executive officer Oranuch Apisaksirikul yesterday insisted the group's capital base was strong enough to support annual loan growth of 12-15 per cent.

She pointed out that Tisco was the only player in the country's banking industry to use the Internal Ratings-Based Approach model for calculating the capital requirements for credit risk.

Tisco's Tier 1 ratio stands at 9.1 per cent, higher than the 6-per-cent requirement under Basel III. The Bank for International Settlements ratio is 13 per cent.

"In 2009, we had Tier 1 capital at 8 per cent, and we questioned having a capital increase as well. But Tisco has proved that increasing capital is not the solution, as long as we focus on low-risk loans that generate higher returns," she said.

For compliance with Basel III, Tier 1 capital is less of a concern than the liquidity rule, which will require each institution to hold enough cash to meet full withdrawal requirements, she added.

The Basel Committee proposed the liquidity rule during the 2009 US economic crisis to address a situation whereby if a high number of depositors wanted to withdraw their cash from banks, the institutions must ensure they have sufficient funds available to meet such massive demand.

Oranuch said the situation today had changed, however, as there was no longer any chance of all depositors wanting to take their money out of banks.

The Basel Committee is expected to discuss the liquidity rule again in the context of the new situation, she said, adding that Thai banks were the strongest in the region in complying with Basel III regulations.

RISK-BASED APPROACH

Tisco does business based on risk to benefit from opportunity ahead of others, the CEO said. Therefore, even though the group targets annual loan growth of 12-15 per cent, actual growth should always be higher than the target.

The three factors that Tisco uses to demonstrate its risk-management efficiency amid high loan expansion are the lowest rate of non-performing loans in the banking industry at 1.2 per cent, a low cost-to-income ratio, and high margins.

The group's return on equity remains high at more than 20 per cent. The return was 21.4 per cent last year.

However, Oranuch believes that if the industry's lending growth is to continue in a range of 30-40 per cent for the next two or three years, it might be necessary to consider a capital-increase solution. But it will not be easy to achieve such a level of loan growth, whatever measures are taken, she added.

"In the past three years, Tisco witnessed loan growth of 30-40 per cent in line with economic expansion. Domestic consumption has opened up chances for our profitability. We continue to expand in niche markets to ensure a high return with less impact on capital," she said.

This year, Tisco remains focused on operating in selective markets such as hire-purchase (lease to own) in captive finance business, and fee income from bancassurance, hire-purchase and brokerage business.

Profitability from fee income is a key business direction for Tisco, as the segment will not have an impact on the group's capital, she said.

The chief executive also said the group would balance the ratio between fee income and interest income, and would also expand its retail customer base to the mass market from high-end customers. Building brand awareness among retail customers this year is, therefore, another key strategy for the bank.