Fitch assigns 'A-(lka)' rating to People's Leasing Company Ltd

Fitch Ratings Lanka said last week it has assigned a 'A-(lka)' (A minus(lka)) National Long-term rating to People's Leasing Company Limited (PLC). The outlook on the rating is stable, it said.

PLC is a fully-owned subsidiary of Peoples Bank and benefits from the business support and the strong retail brand franchise of PB in the small- and medium-sized enterprise sector. PLC's vehicle lease portfolio tripled in the period FY03 to FY06 with commercial vehicles such as buses and lorries accounting for a bulk of the leases.

PLC's return on assets was relatively good when compared to its peers and was 3.3% in FY06 compared to 2.3% in FY05. PLC's net interest margin reached close to the industry average of 10% for FY06. This follows a period of steady improvement in the margins from a low net interest margin of 6.5% in FY01. That said PLC's margins are expected to narrow somewhat in the future due to competition but will continue to remain healthy, Fitch said.

At FYE06, overall non performing loans (NPLs, defined by Fitch as leases in arrears for over three months) as a percentage of gross leases was low at 7.4% compared to 9.9% at FYE02. The improvement in this ratio is largely due to PLC's lease portfolio doubling over this period whilst NPL accretion has been relatively modest. However, Fitch said it was concerned with PLC's large exposure to bus operators (30.8% of lease portfolio assets were on buses) which are increasingly affected by rising fuel costs and regulated fares.

PLC's capital position improved in FY06 due to a capital infusion of Rs 300 million from its parent company. Subsequent to the equity infusion, PLC's equity to assets ratio improved to 10.8% at FYE06 from 7.5% at FYE05. Nonetheless, this ratio is still below the sector average of 14.3% at FYE06. PLC's leverage measured by debt/equity reduced to 7.4x at FYE06 from 11.4x at FYE05 but was higher than the sector average of 5.5x.

The agency said PLC's solvency ratio as measured by net NPL/equity ratio was quite strong and remains the best in the sector because PLC's provisioning policies are more stringent than the Central Bank of Sri Lanka's guidelines.

Established in 1996, PLC is a fully-owned subsidiary of PB, the second largest bank in Sri Lanka. PLC is also the largest specialised leasing company in Sri Lanka and had a high market share of approximately 12% of total leases outstanding (including banks and finance company leases) at end December 2005.