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

Fitch Ratings Lanka has affirmed Senkadagala Finance Company Ltd's (SFC) National Long-term rating at 'BBB+(lka)' and its senior debentures at 'BBB+(lka)'. The Outlook is Stable.

SFC's ratings factor in its relatively high levels of profitability and capitalisation.

However, the ratings are constrained by the company's current scale of operations and relatively less diversified funding streams.

Although marginally higher than the sector, SFC's loan growth was moderate at 19.1% at end-March 2008 (FYE08), as the company tightened credit disbursement in light of less favourable macro-economic conditions.

Its loan book is still dominated by vehicle finance - lease and hire-purchase (HP) - which accounted for 95.6% of the loan portfolio at FYE08.

However, the proportionate mix of lease and HP has been changing over the years, with HP currently constituting a greater share of the portfolio in line with changing consumer demand (FYE08: 38% and 58% of loans).

The gross NPL ratio weakened to 12.0% at FYE08 (FYE07: 8.0%), largely due to the challenging macro-environment. However as SFC stepped up its recovery procedures since, it improved this ratio to 9.8% at end-June 2008 (Q109), which compared favourably against the sector average (Q109: 13.8%). Nevertheless, Fitch notes that the quantum of seized vehicles has increased substantially over the past two years, (Q109: LKR222m) and as being experienced across the sector, that full recovery of dues on disposal could increasingly become a challenge.

Although borrowings (which are securitised against lease and HP receivables) still funded as much as 49.8% of assets at FYE08 (FYE06: 54.9%) its proportionate share has been declining as this type of funding is becoming less cost effective.