Thailand Financial News

Shinsei Bank, Limited (“Shinsei Bank”) has reported its financial results for the first nine months of fiscal year 2006 ended December 31, 2006.
“Our results for the first nine months of this fiscal year have been significantly impacted by the current situation affecting the consumer finance industry” said Mr.

Thierry Port?, President and Chief Executive Officer of Shinsei Bank. “We have responded quickly and decisively to these changes through a number of major measures, including prudent provisioning and by accelerating the transformation process that ensures the viability and profitability of this business from fiscal year 2007 onwards.” Financial Overview: First Nine Months of Fiscal Year 2006
(All figures compared to the first nine months of Fiscal Year 2005) Revenue grew 12.2 billion yen or 6.0% to 215.7 billion yen
Ordinary business profit increased 1.1 billion yen or 1.1% to 103.2 billion yen Key Highlights: First Nine Months of Fiscal Year 2006
On November 14, 2006, Shinsei Bank concluded an important partnership with UTI Asset Management Company Pvt., Ltd., (“UTI”) for the management and distribution of off-shore funds invested in Indian securities. UTI is the oldest and largest mutual fund company in India with 375 billion Indian Rupees (approximately one-trillion yen) in assets under management and 12% market share in India’s fast-growing mutual fund industry. Subordinated Notes. The notes bear an interest rate of Gilts +107bps and are callable after seven years.
On January 16, 2007, Shinsei Bank revised its financial forecast for fiscal year 2006 due primarily to increases in reserves for possible losses on reimbursements of excess interest payments, higher credit reserves and restructuring costs relating to its consumer finance business. 1. Income Statement:
For the nine months ended December 31, 2006, Shinsei Bank reported total revenue of 215.7 billion yen, an increase of 12.2 billion yen, or 6.0%, as compared to the same period in the previous fiscal year. Net interest income grew 13.6 billion yen, or 22.5%, to 74.1 billion yen due partly to an increase in interest-earning assets in all three strategic pillars (Institutional Banking, Consumer and Commercial Finance and Retail Banking). Non-interest income, consisting of net fees and commissions, net trading income and net other business income, declined 1.3 billion yen, or 1.0%, to 141.6 billion yen. The primary factors causing a decline in non-interest income were lower upfront fees from retail banking’s structured deposits and Shinsei Bank’s equity in the non-consolidated net loss of equity-method affiliate, Shinki Co., Ltd. (“Shinki”). Shinki incurred a non-consolidated net loss of 17.1 billion yen, and Shinsei Bank’s equity in such loss was 6.0 billion yen, net of consolidation adjustments, which is included in net other business income. Shinki’s non-consolidated net loss was due primarily to provisions for potential losses from the reimbursement of excess interest payments and other related costs (“grey zone interest”). Declines in non-interest income caused by Shinsei Bank’s equity in Shinki’s net loss and other factors were largely offset by gains on the partial sale of Shinsei Bank’s equity investment in an asset management company. General and administrative expenses for the nine months ended December 31, 2006 were 112.5 billion yen, an increase of 11.0 billion yen, or 10.9%, as compared to the same period in the previous fiscal year. The increase is due mainly to increased product and customer support required for business expansion in all three business pillars as well as to the addition of expenses related to the newly acquired consumer finance company, Zen-Nichi Shinpan Co., Ltd., (“Zen-Nichi Shinpan”). Net credit costs were 19.6 billion yen for the nine months ended December 31, 2006, as compared to 22.8 billion yen for the same period in the previous fiscal year. The decrease in net credit costs was mainly attributable to net credit recoveries in Shinsei Bank (non-consolidated) of 9.3 billion yen. The decrease in net credit costs for the first nine months of this fiscal year were offset in part by higher credit provisions in APLUS relating primarily to delays in collection and provisions for grey zone interest. Shinsei Bank’s financial results for the nine months ended December 31, 2006 were impacted by provisions made by APLUS and Shinki for future possible losses on reimbursements of excess interest payments and loan losses in response to the changes in legislation as promulgated on December 20, 2006. These changes stipulate that consumer finance companies make provisions for possible losses on reimbursements of excess interest payments and loan losses related to consumer finance loans extended at interest rates in excess of the maximum interest rate prescribed in the Interest Rate Restriction Law. In response to these changes, APLUS (including Zen-Nichi Shinpan) made an additional provision and incurred other related costs of 11.2 billion yen, of which 1.3 billion yen is included in net credit costs and 9.9 billion yen is included in taxes and others. Shinki also made substantial provisions and incurred other related costs, but since Shinki is an equity-method accounted affiliate its provision affects our consolidated income statement at the revenue level, as discussed above. The acquisition of majority stakes in APLUS, Showa Leasing and other consumer and commercial finance (CCF) companies resulted in the creation of goodwill and other intangibles. The amortization of goodwill and other intangibles declined 5.5 billion yen to 15.4 billion yen for the nine months ended December 31, 2006 compared with the same period in the previous fiscal year. The amortization of goodwill and other intangibles relating to APLUS (including Zen-Nichi Shinpan) and Showa Leasing was 12.8 billion yen and 2.6 billion yen, respectively. Taxes and others for the first nine months of fiscal year 2006 totaled 20.9 billion yen and mainly include minority interests in net income of subsidiaries and provisions for grey zone interest. For the nine months ended December 31, 2006, minority interests in net income of subsidiaries amounted to 12.5 billion yen and provisions of grey zone interest totaled 9.9 billion yen. As a result, net income for the nine months ended December 31, 2006 amounted to 47.1 billion yen, a decline of 12.5 billion yen, compared with the same period in the previous fiscal year. Cash Basis Net Income
Shinsei Bank also reports cash basis net income on a voluntary basis in order to provide greater transparency and understanding of its underlying performance. Cash basis net income is calculated by excluding amortization of goodwill and other intangibles, net of tax benefit, from net income under Japanese GAAP. The first nine months of this fiscal year included 12.9 billion yen of amortized goodwill and other intangibles, net of tax benefit, related to the acquisition of CCF companies. Consolidated cash basis net income for the period was 60.1 billion yen, compared to 77.9 billion yen a year ago. Cash basis diluted net income per share for the nine-month period of fiscal year 2006 was 30.98 yen, a decrease of 19.9%, compared to the same period last year. 2. Business Line Results
Shinsei Bank’s three strategic business lines: Institutional Banking, Consumer and Commercial Finance and Retail Banking cover a broad range of businesses and customer segments which provide diversified revenues. Institutional Banking
Shinsei’s institutional banking business model seeks to diversify sources of income. In particular, Shinsei Bank has developed investment banking businesses that generate not only loan income but also fees, commissions, capital gains and other types of non-interest income. In the first nine months of fiscal year 2006, the Institutional Banking business earned revenue of 94.2 billion yen, 9.9% or 8.5 billion yen higher than the same period a year ago. The business made good progress in real estate finance, corporate lending, equity investments and in both the domestic and international credit trading business. General and administrative expenses for the period increased 3.5 billion yen to 33.1 billion yen, relating to expansion of the business. Net credit recoveries for the period of 14.2 billion yen are in part attributable to an improvement in the credit ratings of several obligors. As a result, ordinary business profit after net credit recoveries totaled 75.3 billion yen, a 17.3 billion yen increase over the same period last fiscal year. Consumer and Commercial Finance
The Consumer and Commercial Finance business provides consumer finance, commercial finance and specialty property finance for both consumers and small businesses. This business has been built up through the acquisition of a number of subsidiaries which now form an integral part of the Shinsei Bank Group with a dedicated team providing operational and managerial direction to each subsidiary to leverage core competencies and intra-bank synergies. The business generated total revenue of 91.6 billion yen in the first nine months of fiscal year 2006. This is 2.4 billion yen higher than a year ago. General and administrative expenses increased 6.1 billion yen, partly due to expenses relating to Zen-Nichi Shinpan, a newly acquired subsidiary of APLUS. The first nine months of fiscal year 2006 have been a challenging period for the Consumer and Commercial Finance business. Though Showa Leasing and the specialty property businesses posted good results during the period, the additional provision requirements following recent regulatory changes affecting the consumer finance industry have affected the financial performance of consumer finance related subsidiary APLUS and affiliate Shinki. APLUS made additional “Grey Zone” provisions and other related costs of 11.2 billion yen and Shinki also made substantial provisions, as discussed earlier. Net credit costs during the first nine months of fiscal year 2006 increased 8.0 billion yen to 31.5 billion yen largely due to delays in portfolio collection and to 1.3 billion yen of provisions for reserves for possible losses on reimbursements of excess interest payments at APLUS. The remaining 9.9 billion yen of provisions for reserves for possible losses on reimbursements of excess interest payments at APLUS which totaled 11.2 billion yen, is included in taxes and others.         Ordinary business profit after net credit costs was 8.8 billion yen which was 11.6 billion yen lower than the same period a year ago. Retail Banking
Shinsei’s retail banking business provides a wide range of innovative financial products and services to a growing retail customer base. The Retail Banking customer base continues to grow at a significant rate, reaching over 1.9 million accounts as of the end of December 2006. In the first nine months of the fiscal year, Shinsei Bank added over 224,000 new Powerflex relationships. The Bank continues to launch new products such as off-shore funds invested in Indian securities following the Bank’s recent tie-up with UTI Asset Management. During the period under review, savings and structured deposits continued to grow steadily but slower growth and spread compression on structured deposits impacted overall revenue growth. In the first nine months of fiscal year 2006, the business generated revenue of 27.3 billion yen, 5.3 billion yen lower than same period last year due to a decline in upfront income from structured deposits. The business earned 9.7 billion yen from structured deposits in the first nine months of this fiscal year, 5.6 billion yen lower than a year ago. Fees on asset management products and net-interest income continue to grow steadily. The ability to sell an increasingly diverse range of products is gradually contributing to more balanced and recurring revenue growth. The increase in general and administrative expenses of 2.4 billion yen to 28.5 billion yen relates to the full impact of retail banking facilities established in the prior year, increased investments in new technology systems and customer driven transaction activities. Ordinary business loss after net credit costs for the period was 1.2 billion yen as compared to an ordinary business profit of 6.2 billion yen a year ago. ALM/Corporate/Other
ALM, Corporate and Other primarily includes results of corporate treasury activities, inter-company adjustments, and corporate level expenses. In the first nine months of this fiscal year ordinary business profit after net credit costs was 0.5 billion yen. 3. Balance Sheet:
Total loans and bills discounted balance increased to 4,977.0 billion yen at December 31, 2006 as compared to 4,087.5 billion yen as at March 31, 2006. In the nine months ended December 31, 2006, Shinsei achieved loan growth in all three business pillars. Corporate loans increased 3.6% to 2,955.6 billion yen, non-recourse real estate finance loans increased 53.4% to 707.6 billion yen, loans to retail customers, including lending to high net worth individuals, grew 18.4% to 584.6 billion yen and loans to consumer and commercial finance customers increased 14.7% to 428.2 billion yen. Total deposits, including negotiable certificates of deposit, increased 987.4 billion yen, or 24.3%, to 5,059.2 billion yen at December 31, 2006, compared with March 31, 2006. The retail deposit balance, including high net worth individuals, grew 426.4 billion yen, or 13.7%, in the nine months ended December 31, 2006 as compared to March 31, 2006 and now exceeds 3.5 trillion yen. As a result, retail funding represented 68.0% of total customer deposits and debentures at December 31, 2006. 4. Non-performing Loans (non-consolidated):
Non-performing loans (NPLs) under the Financial Revitalization Law as of December 31, 2006, declined to 22.7 billion yen, a reduction of 19.8 billion yen, or 46.6%, as compared to the NPLs balance at March 31, 2006. The NPLs balance now represents 0.5% of total non-consolidated claims outstanding. 5. Fiscal Year 2006 Net Income Forecast:
In the fourth quarter of fiscal year 2006, Shinsei Bank’s consumer finance businesses plan to record incremental credit and restructuring expenses. In particular, as announced on January 16, 2007, APLUS plans to record costs associated with increases in loan losses of 8.3 billion yen, expenses related to voluntary retiring employees of 5.5 billion yen, costs of disposal of non-performing loans of 2.9 billion yen and other restructuring costs of 1.1 billion yen totaling 17.8 billion yen. As a result, Shinsei Bank’s (consolidated basis) reported net income forecast for fiscal year 2006 is 40.0 billion yen. Shinsei Bank is also currently assessing together with its external auditors the additional impact on the consolidated and non-consolidated financials of both Shinsei Bank and APLUS on account of impairment of investments in subsidiaries/affiliate and of goodwill and other intangibles. The Bank will release details of any such additional impact in a timely and appropriate manner. –www.theasianbanker.com (January 31 2007)–