BFL's ratings reaffirmed at BBB-/P3

RAM Ratings Lanka has reaffirmed Bartleet Finance Limited's ("BFL" or "the Company") long- and short-term ratings at BBB- and P3. However, the outlook on the long-term rating has been revised from stable to negative. This is premised on the heightened delinquencies from certain loan segments, which have pressured the Company's capital position. Nonetheless, BFL's ratings are still supported by its established franchise and improved liquidity position.

BFL celebrated its 25th anniversary in November 2008. The Company is part of the Bartleet Group, a local conglomerate that has been in business for over a century. However, BFL remains a small player in the registered finance company ("RFC"), accounting for only 1.77 percent of the industry's asset base as at end-March 2009. Although the Company provides retail loans, it focuses on the disbursement of leases and hire-purchase ("HP") facilities.

"We note that BFL's core portfolio of leases and HP facilities has remained healthier than the industry's. However, the Company's overall gross non-performing loans ("NPL") ratio has been weakened by defaults in few loan categories. On the other hand, BFL's portfolio of leases and HP facilities, which accounted for 87.36 percent of its total loans at end-September 2009, stayed healthy due to the Company's good recovery and monitoring efforts. The default rate on the Company's combined portfolio of HP facilities and leases clocked in at 4.47 percent as at the same date."

"Meanwhile, we observe some concentration risk in its loan portfolio. Loan concentration renders the quality of the Company's credit portfolio volatile, as a few defaults can result in a substantial jump in NPLs. In this context, the Company's gross NPL ratio had climbed up to 8.87 percent as at end-September 2009 (end-March 2009: 3.00 percent), driven by defaults on few large loans from its cheque-discounting portfolio. Defaults from this portfolio accounted for 24.42 percent of BFL's total NPLs as at end-September 2009. We note that these had originated from a few long-standing customers that had been affected by the economic downturn. We also note that the Company had curtailed lending following the RFC crisis in Sri Lanka, instead focusing on improving its liquidity."

"With high cost deposits being channelled to liquid assets, which yield less compared to credit assets, BFL's financial performance weakened in FYE 31 March 2009 ("FY Mar 2009"). The Company's net interest margin ("NIM") narrowed from 12.08 percent to 9.10 percent year-on-year ("y-o-y") (1H FY Mar 2010: 6.21 percent). We observe that BFL's large deposit base had been re-priced at a faster pace amid rising interest rates while loan growth had been restricted; this had hindered the Company's ability to pass on the increase in interest rates.