LRA reaffirms BBB2/ L2 ratings to Alliance Finance

RATING: LRA has reaffirmed Alliance Finance Co Ltd’s (“the Company” or “Alliance”) respective long-and short-term financial institution ratings at BBB2 (with a stable outlook) and L2.

The ratings are supported by the Company’s improving asset quality and performance, as well as adequate capitalisation.

On the other hand, the ratings are moderated by the company’s softening funding structure.

Alliance, with a 50-year history, has clearly established itself as a stable finance company.

During the period under review, the company successfully improved it asset quality by beefing up monitoring and collections, as reflected by the higher quantum of non-performing loans (“NPLs”) (on a 6-month classification basis) that had turned performing, and low incidences of new NPLs.

These, together with NPL write-offs, eased the company’s absolute NPL level and gross NPL ratio; its absolute NPLs reduced from Rs. 127.00 million as at the end of FYE 31 March 2005 (“FY Mar 2005”) to Rs. 95.06 million as at end-FY Mar 2006.

Its gross NPL ratio ameliorated from 8.94% as at end-FY Mar 2005 (industry: 8.44%) to 4.72% as at end-FY Mar 2006 (industry:5.85). Concurrently, the company maintained its provisioning levels and fully cushioned its NPLs.

Alliance’s profitability indicators improved in FY Mar 2006 following the upturn in its gross income. The company’s heightened gross income pushed its return on assets (“ROA”) and return on equity (“ROE”) to 3.06% and 24.28%, respectively, as at end-FY Mar 2006.

In comparison to the industry, however, Alliance’s performance remained depressed by its hefty overheads and losses stemming from its start-up trading business.