Fitch downgrades Vallibel Finance outlook but maintains previous rating
View(s):The Dhammika Perera-controlled Vallibel Finance (VFL) has had its outlook downgraded to “Negative” by Fitch, a result of a declining capitalisation, as witnessed by a falling equity/assets ratio, as well as deteriorating asset quality, attributable to rapid lending, However, Fitch did note that VFL’s national long term ratings was being maintained at its previous “BB-(lka)” level.
According to VFL’s most recent Fitch-issued Rating Action and Commentary; “VFL’s portfolio expanded strongly (79 per cent in the financial year to March 2012), driven by lower import duties on vehicles and by branch expansion. Consequently, its equity/assets ratio fell to 9.6 per cent at end-H113 (FYE12:10.3 per cent; FYE11:12 per cent). Loan growth slowed to 16 per cent in H113 due to a reduction in credit demand and an increase in import duties on vehicles after 31 March 2012″.
Additionally; “VFL’s asset quality weakened, particularly for loans that are three months overdue, with its gross NPL ratio rising to 14.1 per cent at end-H113 (FYE12: 8.2 per cent) due to the seasoning of its loan portfolio. Consequently, its net three-month NPLs/equity ratio nearly doubled to 112.3 per cent during the same period. VFL’s gross NPL ratio for loans that are six months overdue also weakened to 2.4 per cent from 1.7 per cent during this period. Its net six-month NPLs/equity ratio rose to 8.4 per cent at end-H113 from 5.3 per cent at FYE12″.
Meanwhile, Fitch also signalled that the rating could be “downgraded if VFL is unable to stem the decline in these metrics, resulting in a significant shift in its financial profile away from similarly rated peers. The Outlook may be revised to Stable if VFL is able to curtail the increase in its non-performing loans (NPLs) through improved portfolio monitoring, supported by new IT systems, and if core capitalisation strengthens alongside slower loan expansion”. (JH)
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