Fitch affirms Senkadagala Finance's 'BBB+(lka)' Rating

RATING: Fitch Ratings Lanka has affirmed the 'BBB+(lka)' National Long-term rating of Senkadagala Finance Company Limited.

At the same time, the agency affirmed the BBB+(lka) National rating assigned to the 2005/2009 unsubordinated redeemable debentures of SFC. The outlook on the ratings is stable. 'BBB' National ratings denote an adequate credit risk relative to other issuers or issues in the same country.

However changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment of these financial commitments than for financial commitments denoted by a higher rated category.

The rating reflects SFC's good asset quality supported by the company's IT system and operating procedures, high profitability and comfortable level of capitalisation.

The rating also takes into consideration the relative assets size and limited revenue diversity of SFC in comparison to other financial institutions.

SF experienced strong loan growth of 88% during FY06 driven by branch expansion undertaken over the past few years.

However, its gross non-performing loans ("NPLs") (defined by Fitch as loans in arrears for over three months) gross loans was 4% at FYE 06 against 2.9% at FYE05.

The company's good asset quality can be attributed to its strong origination and monitoring processes facilitated by its IT system as well as good recoveries of arrears.

SF also follows a policy of writing off loans that are over six months in arrears (except those secured by deposits).

Medium-term asset-backed loans secured by the mortgage of lease receivables have increasingly been used by SF to fund its loan growth. Fitch notes that a continued increase in asset-backed loans, particularly where asset replacement is allowed, could increase risk to other senior creditors.

The agency takes comfort from the company's good asset quality and its intention to increase its deposit base by improving deposit mobilisation through increased marketing efforts and the introduction of savings deposits.