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Fitch Ratings Lanka Ltd (FRL) has affirmed the SL BBB national rating for the Implied Long-term unsecured Senior Debt of Senkadagala Finance Company Ltd. (SF)

SL BBB rating denotes that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in economic circumstances and in economic conditions are more likely to impair this capacity.

The rating action reflects SFs stand alone financial position, which is possibly the best among the finance companies. However, the rating is constrained due to the relative small size of SF in the industry. During the first half of 2002/3, SF grew its loan book by 40% partly assisted by improved macro economic conditions.

Inspite of a weak economic environment in the previous year, SF has maintained asset quality through good credit selection, resulting in arrears over six months being 3% as at September 2002. Nevertheless SFs challenge in the near term would be to maintain asset quality particularly as the new leases mature over time. Return on assets (ROA) declined marginally to 5% during the March 2002, due to the decline in margins.

Nevertheless, SFs ROA remains at the higher end among the financial institutions in Sri Lanka. Furthermore, due to the high earnings retention policy, equity funds grew at a higher rate than risk assets, improving capital adequacy.

SF accessed institutional funding for the first time through securitisation transactions in 2002. This added diversity to the fund base and improved the match between asset liability maturity.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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