Fitch affirms BBB+(sri) credit rating of Senkadagala Finance

Fitch Ratings Lanka Ltd (FRL) has affirmed the BBB+ (sri) national credit rating assigned to the Implied Long-term Unsecured Senior Debt of Senkadagala Finance Company Ltd (SF).

The BBB+(sri) 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 SF's good asset quality and healthy profitability which has been maintained despite the portfolio growth. The rating is also supported by the company's strong IT system and operating procedures which would enable the company to monitor asset quality and manage cost. The rating takes comfort from SF's relatively high capitalisation level and the high earnings retention policy. The rating was constrained by the asset size of SF, which despite the strong growth over the last few years remains relatively small in comparison with the other financial institutions in Sri Lanka.

SF experienced a portfolio growth of 62% during FYE 2004 supported by its branch expansion program, on the back of the high 93% growth recorded in FYE 2003. The growth momentum has been sustained during the first nine months of FYE 2005, with the portfolio expanding by 33%. During the FYE 2004, asset quality weakened marginally with NPL/Gross loans increasing to 4.2% as at March 2004 from 3.3% in March 2003.

The Net NPL/Equity ratio reverting back to 15.2% as at March 2004 (7.2% in March 2003). Nevertheless, SF's asset quality remains strong and healthy amongst its peers and in the local context.