OREANDA-NEWS. Fitch Ratings (Thailand) Limited has affirmed the National Long-Term Ratings of Aeon Thana Sinsap (Thailand) Public Company Limited (AEONTS) at 'BBB+(tha)', with a Positive Outlook. The National Short-Term Rating has also been affirmed at 'F2(tha)'.

KEY RATING DRIVERS

The ratings are driven by the company's stand-alone financial strength. AEONTS is entirely focused on consumer lending, in which it has built up a reasonably established franchise in Thailand. The company has shown the ability to operate profitably across the business cycle and in the face of much volatility in the operating environment in the past. Nevertheless, the operating environment remains fragile, with high levels of household leverage leading to potentially significant downside risks for the Thai financial sector (particularly for exposures to lower-income groups) in the event of a worse-than-expected downturn.

AEONTS is a non-bank financial institution without access to customer deposits, and hence is reliant on wholesale funding for the receivables on its balance sheet. However, it has managed the associated funding risk well by having developed extensive banking relationships with local and international banks and maintaining consistent access to capital markets (for both standard and securitised debt issuance).

RATING SENSITIVITIES

The Positive Outlook reflects AEONTS' gradual improvements in capitalisation since 2012, and acceptable performance despite weak economic growth in 2014. Positive rating action could result if there were further sustainable improvement in key leverage ratios to above prior peak levels, which would provide a bigger buffer for the company during weaker times.

An indication of increased risk appetite, combined with a weakening of key financial figures such as on asset quality, liquidity and leverage, could lead to a revision of the Positive Outlook to Stable or even negative rating action. There are also regulatory risks that may arise, such as further restrictions on interest rate levels, although such shifts appear unlikely in the short-term.