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| Sunday, 4 January 2004 |
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| News Business Features Editorial
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Senkadagala Finance credit rating upgraded Fitch Ratings Lanka Ltd. (FRL) has upgraded the national credit rating assigned to the Implied Long-term Unsecured Senior Debt of Senkadagala Finance Company Ltd. (SF) to SL BBB+. SL BBB+ rating denotes a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in economic circumstances and economic conditions are more likely to impair this capacity. The rating action reflects SF's good asset quality, strong profitability and the relatively high capital adequacy. However, the rating is constrained due to the relative size of SF when compared with banks and other financial institutions. The company experienced a portfolio growth of 103 per cent during Financial Year 2003 followed by a 43 per cent growth during the first half of the current financial year. It continued to maintain relatively high operational efficiency due to its past investments in IT. SF's asset quality has improved due to a reduction in absolute NPLs. According to the classification standards prescribed for finance companies by the Central Bank, SF's Net NPL/Equity has improved to -2.3 per cent (i.e. provisions exceed NPLs) as at March 2003 (-1.1 per cent in 2002). The improvement in asset quality has been achieved despite high portfolio growth. Nevertheless, SF's challenge in the near term would be to maintain asset quality particularly as the new leases mature over time. Return on assets (ROA) declined marginally to 5.1 per cent from 5.6 per cent during the FY 2003, largely due to high asset growth. However, SF's ROA remains at the higher end among local financial institutions. SF has, to a larger extent, relied on asset backed loans (medium-term loans secured by the mortgage of lease receivables) to fund expansion of its loan book. As at September 2003, such borrowings accounted for 39 per cent of SF's funding. Given that the repayment terms of the loans are structured to match lease receipts, SF's asset-liability maturity structure has improved. SF was established in 1968. It is now the seventh largest finance company in terms of total assets out of 26 registered finance companies. SF's business focus is on providing lease finance, particularly vehicle leases, to small and medium enterprises. The company has a network of four branches in Kandy, Colombo, Kurunegala and Negombo. SF has been using a relatively sophisticated IT system which has automated operations to a high degree, resulting in high operating efficiency and strong asset quality. Fitch Ratings Lanka is a joint venture between Fitch Ratings, USA, International Finance Corporation, Central Bank of Sri Lanka and several other leading local financial institutions. Fitch Ratings, USA is one of the three global full service credit rating agencies and has rated over 85 sovereign nations, 7,600 structured finance ratings, 2,900 international banks and financial institutions. Fitch Ratings Inc. has over 90 years' experience in credit analysis and a combined analytical and professional staff of more than 1,400. |
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