Financial Times

Fitch Ratings Lanka assigns ‘stable’ rating to The Finance Company

Fitch Ratings Lanka said last week it has assigned a National Long-term rating of 'BBB(lka)' to The Finance Company Ltd ("TFC"). The outlook on the rating is stable.

TFC's 'BBB(lka)' National ratings denote an adequate credit risk relative to other issuers or issues in the country. However, changes in circumstances or economic conditions may affect its capacity for timely repayment of its financial commitments to a greater degree than for financial commitments denoted by a higher rated category, Fitch said in a statement.

The rating reflects the company's dominant position in the finance company sector in Sri Lanka, with a 29% market share of the sector's assets.

The rating also takes into consideration its main shareholder – the Ceylinco Consolidated Group.

The agency notes that the key factors constraining the rating are TFC's relatively weak asset quality and its profitability indicators vis-a-vis its main peers, its weak capitalisation position, and its relatively weak risk management framework.

TFC's portfolio grew by 19.1% in the nine months ended December 2005, driven by real estate and vehicle hire purchase agreements ("HP") which grew by 26% and 37.2%, respectively. As at December 2005, real estate development and related financing accounted for 41% of the portfolio, of which, most of the titles are vested with the company until full repayment.

Vehicle related financing (leases and HP) accounted for 48% of the portfolio while several loan schemes targetting professionals and small business enterprises accounted for the rest of the portfolio.

Going forward, TFC's management expects real estate development and HP to be the key drivers in loan growth.

“Although Fitch views this asset diversity positively, the agency warns that the company needs to be cautious on possible maturity mismatches on funding, and possible liquidity constraints as a high proportion of the portfolio is in real estate financing,” the statement said.

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