Fitch revises Sinhaputhra Finance PLC’s outlook to stable;
Fitch Ratings Lanka has revised Sinhaputhra Finance PLC’s (SFL)
outlook to stable from negative. Its National Long-Term rating has been
affirmed at ‘B(lka)’.
The Outlook revision and affirmation reflect improvements in SFL’s
credit risk management practices and the subsequent stabilisation and
enhancement in its asset quality, although the latter still remains
weaker than its peers’ average.
The affirmation also reflects SFL’s weak net non-performing loans
(NPLs)/equity ratio and low profitability relative to peers in its
The rating may be downgraded if SFL fails to prevent its asset
quality and net NPLs/equity from weakening.
Negative rating action may also result from ddeterioration in
adjusted equity/assets ratio (excluding revaluation gains) that will
reduce SFL’s capacity to negotiate a potential increase in credit costs
as its loans season.
SFL’s clientele are largely limited to the Kandy district (Central
province) and its surrounding areas, and consist of the small and medium
Vehicle finance via leases and hire purchase agreements accounted for
half of the loan portfolio at end-March 2012 (FYE12), with the remainder
consisting of loans (majority backed by personal guarantees and property
mortgages), which has been the case over the last five years.
Incremental portfolio loan growth was 22% in FYE12 (19% in FYE11).
Structural changes in the recovery/collection process have begun to take
effect with SFL’s advances in arrears over six months (regulatory NPLs)
declining to 8.8% at FYE12 from 16.2% at FYE11. However, asset quality
ratios still lag the sector average.
Although net interest margins (NIM)s has steadily increased to 7.9%
in FY12 from 5.5% in FY10, these ratios are on the lower end of the
sector. Liquidity tightened due to the strong loan growth, however SFL’s
statutory liquidity ratios remained above the regulatory norms.
Further, SFL like other registered finance companies (RFCs) face
interest rate risks on account of the structure of its assets and
Rate-sensitive assets covered 59% of rate-sensitive liabilities at
FYE12, which, given its low NIMs and low adjusted capitalisation,
provides less flexibility to manage short-term interest rate hikes and
higher-than-expected credit costs.
Established in 1978, SFL is an RFC. It was listed on the Colombo
Stock Exchange on 2 June 2010. However, its current managing director,
Ravana Wijeyeratne, retains control of SFL, holding 52% of equity.