The global credit rating agency, Fitch Ratings has affirmed the ratings of the ten Sri Lankan finance companies. The rating actions follow Fitch’s periodic review of the large and mid-sized finance companies in Sri Lanka.
Fitch has affirmed the ratings of the People’s Leasing & Finance (PLC), Central Finance Company (CF), Melsta Regal Finance Ltd (MRF), HNB Grameen Finance Limited (HGL), LB Finance (LB), Siyapatha Finance (Siyapatha), Senkadagala Finance (Senka), AMW Capital Leasing and Finance (AMWCL), Singer Finance (Lanka) (SFL), and Mercantile Investments and Finance (MIF).
Fitch expects capitalization in the sector to come under pressure as a result of asset quality pressures stemming from a challenging operating environment and unfavorable weather conditions and declining profitability due to higher funding and credit costs.
Fitch sees that the shift in the business mix of the entities considered in this peer review has become more apparent given the slowdown in the vehicle financing segment following the increase in import tariffs, imposition of lower allowable loan-to-value ratios coupled with a high interest rate environment.
Licensed finance companies have increasingly engaged in term/working capital financing – a segment that Fitch believes is more risky due to larger transaction amounts and poor collateral such as third-party guarantees or post-dated checks.
Fitch’s ratings on the finance companies in the peer group are primarily driven by their business model, franchise and risk appetite, which is reflected in their exposure to more vulnerable customer segments.