Fitch affirms Siyapatha Finance at ‘A’; Outlook Stable

Friday, 28 March 2014 00:00 -     - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka said yesterday it has affirmed Siyapatha Finance Ltd.’ (SLFL) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable. The agency has also affirmed SLFL’s outstanding senior unsecured redeemable debentures at National Long-Term ‘A(lka)’. Key rating drivers SLFL is 100% owned by Sampath Bank PLC (SB, AA- (lka)/Stable). SLFL is rated two notches below its parent because Fitch classifies SLFL as strategically important to SB. This view is premised on SB’s majority ownership of SLFL, involvement in the strategic direction of SLFL through board representation, and the potential reputational repercussions on SB should it allow SLFL to fail. The debentures are rated at the same level as SLFL’s National Long-Term rating of ‘A(lka)’, as they constitute direct, unconditional, unsecured and unsubordinated obligations of the company. SLFL provides vehicle finance to customer segments, which are typically not serviced by banks. In 2013 SLFL contributed 30% of SB’s consolidated net lease portfolio (2012: 31%).SB has provided ordinary support to SLFL in the form of borrowing 22% of total borrowings and had guaranteed 13% of SLFL’s total borrowings as at December 2013 (2012: 22% and 33% respectively). Rating sensitivities SLFL’s rating may be downgraded if there is any change to SB’s ability or propensity to extend support. This may stem from a change to SB’s National Long-Term Rating or a significant weakening of linkages with SB - such as a dilution of SB’s majority ownership, or greatly reduced strategic involvement in SLFL. SLFL may be upgraded if there is a significant increase in SLFL’s strategic importance to SB as indicated by closer strategic alignment between the two entities resulting in a consistent and sustainable higher group profits or closer operational integration, while remaining majority-owned by SB. Any changes to SLFL’s National Long-Term rating would impact the issues’ National Long-Term rating. SLFL accounted for 1% of the non-bank finance sector’s assets at end-August 2013.Fitch expects asset quality indicators to remain under pressure amid a challenging economic climate. SLFL’s non-performing advances (NPA) in arrears for over three months and six months including interest in suspense increased to 7.5% and 3.2% of total loans in 2013 (2012: 3.3% and 1.8% respectively). The deterioration in NPLs was partly due to the exposures which have been adversely affected by poor weather and low business activity. SLFL’s capitalisation measured as the ratio of Fitch Core Capital decreased to 12.9% at end-December 2013 (2012:18.9%). This ratio was low on account of high asset growth.