Fitch affirms Sinhaputhra Finance B(Lka)

Fitch Ratings Lanka has affirmed Sinhaputhra Finance PLCs (SFL) National Long Term Rating at 'B (Lka). The Outlook is negative.

The affirmation reflects the latest improvement in SFL's credit risk management practices and the subsequent stabilisation in asset quality, although it still remains weaker than its peers' average.

The rating may face downward pressure if SFL fails to prevent its asset quality and Net Non Performing Loans (NPL) equity from weakening under the regulatory six month classification.

The high proportion of NPLs will also constrain the company's overall net asset margins and reduce its internal capital generation.

In addition any deterioration in corporate governance performance at SFL would also lead to a negative rating.

Fitch notes that SFL's clientele is largely limited to the Kandy district and surrounding areas and consists of SMEs.

Vehicle finance via lease and hire purchase agreements accounted for half of SFL's loan portfolio at end March with the remainder consisting primarily of loans (majority backed by property mortgages) as over the last five years.