Commercial leasing rating revised to stable from negative

Fitch Ratings Lanka said this week it had affirmed the 'A-(lka)' (A minus (lka)) National Rating of Commercial Leasing Company Ltd (CLC) in which the outlook has been revised to stable from negative.

The revision of the Outlook reflects Fitch's concern over the deterioration in CLC's asset quality and its implications on solvency, Fitch said. CLC's asset quality dipped towards the latter part of FY06 and in Q107 in line with industry peers, albeit to a greater degree. The ratio of gross non-performing loans (NPLs) in arrears for over three months deteriorated to 12.6% at end-Q107 and 11.5% at FYE06, from 5.4% at FYE05.

As a result, solvency (measured by Fitch as net NPL's above three months/equity) weakened to 62.1% at end-Q107 and 53.4% at FYE06 compared to 19.8% at FYE05, despite the improvement in the company's capital position.

CLC managed to improve on its recoveries somewhat during Q207, resulting in a gross NPL ratio of 11.7% at the three-month level at end-June 2007, although its solvency at 49.9% remained weaker than that of industry peers in its current rating category.