Fitch affirms Sinhaputhra Finance at ‘B(lka)’
Fitch Ratings Lanka has affirmed Sinhaputhra Finance PLC’s (SFL)
National Long-Term rating at ‘B(lka)’. The outlook is negative.
The affirmation reflects the latest improvement in SFL’s credit risk
management practices and the subsequent stabilisation in its asset
quality, although the latter still remains weaker than its peers’
average.
The rating may face downward pressure if SFL fails to prevent its
asset quality and net non-performing loans (NPL)/equity from weakening
under the regulatory six-month classification.
The high proportion of NPLs will also constrain the company’s overall
net interest margins (NIM) and reduce its internal capital generation.
In addition, any deterioration in corporate governance performance at
SFL would also lead to a negative rating action.
Fitch notes that SFL’s clientele are largely limited to the Kandy
district (Central province) and its surrounding areas, and consist of
the small and medium enterprise sector.
Vehicle finance via leases and hire purchase agreements accounted for
half of SFL’s loan portfolio at end-March 2011 (FYE11), with the
remainder consisting primarily of loans (majority backed by property
mortgages) which has been the case over the last five years.
Incremental portfolio loan growth was 11 percent in FYE11 following a
contraction of 4 percent in FYE10.
Operationally, SFL’s operating costs and average assets (historical
five-year average was 3.5 percent at FYE11) has been low relative to its
sector.
This is partly due to better utilisation of collection centres within
its network. Statutory liquidity ratios were comfortable, while interest
rate risks were managed by better matching of interest bearing assets
and liabilities.
The company’s NIM continued to be well below the sector average at
FYE11, largely because a large proportion of the lending portfolio was
non-performing. SFL’s NPLs over three months as a percentage of loans
spiked to 32 percent at FYE10 from 22 percent at FYE09.
In early January 2011, its restructured recovery and credit
procedures began to take effect with its three-month NPLs/loans
declining to 27 percent at FYE11 (end-May 2011: 24 percent).
SFL’s advances in arrears over six months (regulatory NPLs) followed
a similar trend.
Established in 1978, SFL is a registered finance company.
It was listed on the Colombo Stock Exchange on June 2, 2010. However,
its current managing director, Ravana Wijeyeratne, continues to maintain
control, holding 52 percent of SFL’s equity.
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