Fitch 'BB+(lka)' rating for Seylan Merchant Leasing

Fitch Ratings Lanka has affirmed the 'BB+(lka)' National Long-term rating of Seylan Merchant Leasing Limited (SML). The outlook on the rating is stable.

SML's rating reflects its modest financial profile, short operating history and limited revenue diversity. The rating also factors in the implied support assumed to be available from ultimate parent Seylan Bank PLC (Seylan Bank, 'A-(lka)' (A minus(lka))/ Negative). In February 2007, SML obtained a license to operate as a registered finance company (RFC), which enabled it to raise fixed and savings deposits from the public.

Following this, deposits grew rapidly and accounted for 31% of SML's funding at H107. Funding from borrowings in the form of promissory notes decreased to 25% of the company's funding at H107, from 67% of the funding at FYE06.

SML's gross NPL/gross loans ratio (NPLs are defined by Fitch as advances in arrears for over 3 months as opposed to the over 6 months classification stipulated by the Central Bank of Sri Lanka) increased to 15.4% at H107 from 9.6% at FYE06 (FYE05: 5.7%) but broadly corresponds to that of similar sized peers. Consequently, net NPL/equity deteriorated to 62.6% at H107, from 37.6% at FYE06 (FYE05:34.3%).

The majority of the company's NPLs fall into the 3 to 6 months in arrears category. Hence, gross NPL/gross loans and net NPL/ equity were more favourable at the regulatory six month level at 6.3% and 19.1%, respectively, at H107.