Fitch affirms Trade Finance and Investments PLC at 'BB+(lka)'

The rating factors in TFI's strong asset quality, capitalization, and profitability metrics for a small-sized registered finance company (RFC). The rating is, however, constrained by its narrow product diversity, comprising mainly hire purchase and leases, and limited funding sources.

A rating upgrade may occur if TFI increases its funding and product diversity, while maintaining sound asset quality, liquidity and profitability. A rating downgrade may occur if TFI is unable to change its asset mix (reducing exposure to two-stroke three-wheelers) and its profitability and asset quality deteriorate significantly relative to peers.

TFI's loan book grew by 34% for the six months ended September 2011 (H112) and 37% in FY11 as the demand for vehicle leases increased in the post-war economy. In addition, the company increased its network by opening a branch in Jaffna, which will provide access to a new clientele.

Advances in arrears over three months/gross loans ratio improved to 10.2% in H112 from 16.3% at FYE11. Its non-performing loan ratio (which is the regulatory level for provisioning) also improved to 2.9% at end-H112 from 4.7% at end-FY11.

This ratio compared well with peers, and was mainly driven by concerted recoveries and loan growth.

Strong capitalization is indicated by TFI's significantly high equity-to-asset ratio of 57% in H112, compared with the sector average of 16%.