Fitch affirms BBB-(lka)’ rating for Ceylease Financial Services

RATING: Fitch Ratings Lanka has affirmed Ceylease Financial Services Ltd’s (CFS) National Long-term rating at ‘BBB-(lka)’.

The outlook on the rating remains stable.

CFS’s rating factors in the implied support assumed to be available from its main shareholder Bank of Ceylon (BOC, rated ‘AA(lka)’) which owns 50% of CFS.

As at FYE06, CFS accounted for 19% of the BOC group’s entire leasing portfolio (22% at FYE05). Fitch also takes comfort in CFS’s close relationship enjoyed with its parent company, as evidenced by common directorships and committed funding lines from BOC.

CFS’s rating is constrained by its small asset base, modest asset quality and solvency, its high credit concentrations, the low margins in its leasing portfolio, and the higher credit risk associated with equipment leasing.

CFS has historically focused on equipment leasing. However, since 2003, it began concentrating heavily on vehicle financing (leasing and hire purchase).

It also changed its portfolio mix significantly, with vehicle financing and equipment leasing at FYE06 accounting for 78% and 22%, respectively; this compares to 48% and 52% at FYE03. CFS’s portfolio yields were less than the sector average due to lower margins offered to its corporate clientele.