Fitch affirms Trade Finance and Investments at ‘BB+’

Fitch Ratings Lanka said yesterday it has affirmed Trade finance and Investments’s (TFI) National Long-Term rating at ‘BB+(lka)’. The Outlook is Stable.

The rating factors in TFI’s strong asset quality, capitalisation, and profitability metrics for a small-sized registered finance company (RFC). The rating is, however, constrained by its narrow product diversity, comprising mainly hire purchase and leases, and limited funding sources.

A rating upgrade may occur if TFI increases its funding and product diversity, while maintaining sound asset quality, liquidity and profitability. A rating downgrade may occur if TFI is unable to change its asset mix (reducing exposure to two-stroke three-wheelers) and its profitability and asset quality deteriorate significantly relative to peers.

TFI’s loan book grew by 34% for the six months ended September 2011 (H112) and 37% in FY11 as the demand for vehicle leases increased in the post-war economy. In addition, the company increased its network by opening a branch in Jaffna, which will provide access to a new clientele.

Advances in arrears over three months/gross loans ratio improved to 10.2% in H112 from 16.3% at FYE11. Its non-performing loan ratio (which is the regulatory level for provisioning) also improved to 2.9% at end-H112 from 4.7% at end-FY11. This ratio compared well with peers, and was mainly driven by concerted recoveries and loan growth.

Strong capitalisation is indicated by TFI’s significantly high equity-to-asset ratio of 57% in H112, compared with the sector average of 16%. Its internal capital generation has been strong in light of its strong profitability with net interest margins at 20.1% (annualised) for H112 (FYE11: 18.7%).

The company has planned additional branch expansions from 2012 onwards; therefore, Fitch expects cost/average assets to increase (H112: 5.6% (annualised)).  

TFI’s liquidity ratio was well above sector at 43% at H112. Given the company’s ongoing deposit mobilisation plans for new branches, Fitch expects its liquidity ratios to reduce from historical averages in the near term, but remain above the sector average of 20%, as the company funds loan growth at the branches.

However, Fitch expects TFI to normalise its loan/deposit ratios at each branch as deposit mobilisation occurs at the branch level. Currently majority of TFI’s deposits, which accounted for 37% of total assets as at H112, are primarily from related parties (H112: 62%). Incorporated in 1978, TFI is an RFC. It has been in operation for 33 years and is currently run by the owners of Jetwing Group (the Cooray family), with over 75% stake. TFI was listed in the Stock Exchange in September 2011 and currently has an asset base of Rs. 739 m. It operates through three branches – one each in Colombo, Jaffna and Kilinochchi – and has a staff strength of 29.