Fitch affirms Central Finance Company at 'A+(lka)'

Fitch Ratings Lanka has today affirmed Sri Lanka's Central Finance Company PLC's (CF) National Long-term rating at 'A+ (lka)'. The Outlook is Stable.

CF's rating factors in its strong financial profile and dominant market position as the second-largest Registered Finance Company (RFC) in Sri Lanka. The rating has also taken into account the lack of product and funding diversity vis-a-vis banks (an inherent limitation of the RFC business model).

Due to current challenging macroeconomic conditions, loan growth slowed to 11% in FY08 from 29% in FY07, with the portfolio continuing to shift towards vehicle hire purchase agreements (HPs). Vehicle financing (leasing and HPs) accounted for 89% of the loan book in FYE08 while loans accounted for the balance of the portfolio. In the six month period to September 2008 (H109), HPs accounted for 28% of the loan book up from 16% at FYE07.

CF's net interest margins were good at 9.0% in FY08 (9.5% in FY07). This was mainly due to better treasury management and increased access to funding from banks at competitive rates. Consequent to the shift in portfolio to HPs, effective tax rates rose to 35% in H109 from 31% in FY07, however ROAs remained robust at 3.6% at H109 (FY08: 3.6%).

Well-defined credit policies and stringent recovery procedures have translated into asset quality that is amongst the best in the RFC sector.