RAM Ratings Lanka reaffirms PMFC

RAM Ratings Lanka has reaffirmed People’s Merchant Finance Company Ltd’s (“PMFC” or “the Company”) long and short-term financial institution ratings at BBB- and P3 respectively; the long-term rating carries a stable outlook. The company’s ratings reflect the financial flexibility derived from its ultimate, state-owned parent People’s Bank (“PB” or “the Bank”), which is the second largest commercial bank in Sri Lanka and is rated AAA/P1 by RAM Ratings Lanka. In addition, PMFC’s strong capitalization provides cushioning against performance volatility. However, the ratings are constrained by its weak asset quality and small size.

PMFC is a small registered finance company (“RFC”) that falls within the regulatory purview of the Central Bank of Sri Lanka (“Central Bank”), and currently operates with just one branch in Kandy. The Company had an asset base of Rs 310.15 million as at end-October 2010. Formerly known as Silvereen Finance Company Ltd, it assumed its current identity after People’s Merchant Bank PLC (“PMB”), a 39.20%-owned associate of People’s Bank, acquired a controlling stake of 99.99 percent in the past financial year. PMB is listed on the Colombo Stock Exchange; it is presently a specialised leasing company (“SLC”) with an asset base of Rs 3.46 billion which comes under the regulatory umbrella of the Central Bank.

PMFC was taken over by PMB with the intention of merging the two entities - the amalgamated entity would gain access to low-cost funds via customer deposits, while PMFC’s current operations could be extended to all of PMB’s branches. The merger plan is due to crystallize in the forthcoming financial year. Upon the merger of the two entities, PMFC would cease to exist while PMB would lose the status of “Bank” and would be transformed into an RFC. Due to the company’s role in the transformation of PMB and the common identity that it shares with the PB Group, we expect support to be forthcoming from its ultimate shareholder should the need arise.