FITCH Ratings last week upgraded Sri Lanka’s People’s Leasing Company Limited’s (PLC) National Long-term rating to ‘A(lka)’ from ‘A-(lka)’. The Outlook remains Stable. The agency has also upgraded the ratings on PLC’s outstanding senior unsecured redeemable debentures to ‘A(lka)’ from ‘A-(lka)’.
The upgrade of PLC’s ratings follows the recent upgrade of its parent’s - People’s Bank (PB) - National Long-term rating to ‘AA-(lka)’/Positive from ‘A(lka)’/Stable, and the perceived strategic importance of PLC to PB. The upgrade of PB’s rating is in turn driven by Fitch’s view of the bank’s increased importance to the Government of Sri Lanka (GOSL), which leads the agency to believe that GOSL’s support is more likely to be forthcoming to PB than in the past, as well as by the improving trend in PB’s stand-alone financial profile. (For more information on PB’s recent rating action, please refer to the rating action commentary, entitled “Fitch Upgrades People’s Bank to ‘AA-(lka)’; Revises Outlook to Positive”, dated 29 October 2010 and available on www.fitchratings.com and www.fitchratings.lk).
Fitch has linked the upgrade of PLC’s ratings to the improvement in PB’s stand-alone financial profile, which in turn addresses the bank’s own capacity to extend financial support to its strategically important subsidiaries. PLC’s ratings could be further upgraded, if PB’s stand-alone financial profile improves, or if, in Fitch’s view, PLC’s strategic importance to, or level of integration with PB, increases. Conversely, PLC’s ratings could be downgraded, if PB’s stand-alone financial profile weakens, or if PLC’s strategic importance to, or level of integration with, its parent, is diluted.
PLC is a 100%-owned subsidiary of PB, and executes the entirety of the group’s incremental leasing operations. At end-June 2010, PLC’s leasing book accounted for 9% of total group advances of PB. Leasing is the third-largest lending segment for the PB group, after pawning advances (gold-backed lending, 30%) and loans to GOSL and state-owned entities (25%).