Fitch affirms People’s Leasing at ‘A-(lka)’

Fitch Ratings has affirmed People’s Leasing Company Limited’s (PL) National Long-term rating at ‘A-(lka)’.

The outlook is stable. At the same time, the agency has affirmed the ‘BBB+(lka)’ rating on the company’s LKR1bn subordinated debenture issue (which was to take place in 2008) and simultaneously withdrawn the issue rating.

The affirmation of PL’s National Long-term rating reflects its relatively good financial profile and dominant market position as one of the largest specialised leasing companies in Sri Lanka.

The rating also reflects PL’s good access to institutional funding, underpinned by the strength of its parent, the state-owned People’s Bank (PB, ‘A(lka)’/Stable, which owns 100 percent of PL), and Fitch’s view that the cyclical weakening of the company’s asset quality since 2007 is likely to reverse over the medium-term.

However, PL’s rating could come under negative pressure if the recovery of its profitability or asset quality lags that of its peers, or the sector as a whole.

The deterioration in PLC’s asset quality showed signs of easing in the quarter ending 30 September 2009 (Q210), subsequent to a peak in June 2009.

Fitch expects the improvement in asset quality to continue, as the local economy recovers from a high inflation and high interest rate environment that prevailed over the 24 months to end-December 2008. While structural improvements to PLC’s monitoring and collection mechanism made in the recent past could help speed-up recovery, Fitch expects the company’s non-performing loans (NPLs) to remain high, at least through 2010, as compared to levels seen prior to 2008.

This underscores the severity of the recent economic downturn, and it is in line with the agency’s expectations for the broader vehicle finance/leasing sector.