Sarvodaya Development Finance rating upgraded to BBB- with Stable Outlook

Friday, 7 November 2025 00:22 - - {{hitsCtrl.values.hits}}

Lanka Rating Agency Ltd., (LRA) has upgraded the entity rating of Sarvodaya Development Finance PLC (SDF) to BBB- with a Stable Outlook, from BB+ with a Stable Outlook.

The LRA said SDF is a Licenced Finance Company (LFC) with strong rural outreach, supported by its longstanding affiliation with the Sarvodaya Movement, although its size remains relatively small.

It said the ratings upgrade reflects the company’s notable improvement in financial performance, strengthened capital position, and continued prudence in asset quality management, supported by its growing footprint in the Micro, Small and Medium Enterprise (MSME), leasing, and gold loan segments.

SDF’s loan portfolio grew by 25.4% to Rs. 24 billion in the six months of FY26 (FY25: approx. Rs. 19.2 billion), while profitability improved to approx. Rs. 340.5 million during 6M FY26 (FY25: approx. Rs. 473.8 million), supported by lower funding costs, strong portfolio growth, and stable spreads.

The sustainability and quality of earnings is critical and will be closely monitored, alongside other key performance indicators, to assess the company’s ability to maintain its improved financial profile.

SDF demonstrated improvement in asset quality, as reflected by the lower gross Non-Performing Loans (NPLs) ratio to 6.0% as of 6M FY26 (FY25: 7.9%), below the industry average. Following the issuance of Tier II debentures amounting to Rs. 2 billion, SDF’s capitalisation remains robust and well above the regulatory requirement, with a Capital Adequacy Ratio (CAR) of 25.9%. This capital buffer is expected to provide adequate headroom for the envisaged portfolio growth, facilitating the achievement of its FY26 projected growth.

The company’s deposit base grew by 2.7% to approx. Rs. 10 billion during 6M FY26, which makes up 43% of the funding mix. The rating remains constrained by the company’s modest market position within the LFC sector and relatively lower profitability, as reflected by its asset base, which constituted around 1.13% of total industry assets as of 3M FY26.

The LRA also said the rating is contingent upon SDF’s ability to strengthen its relative position within the sector and maintain asset quality with NPLs below industry averages. Enhancing profitability, maintaining a healthy CAR ratio (at or above industry average), and expanding market share will be critical to maintaining SDF’s rating. Any significant lapse in these indicators will have an adverse impact on the rating, the LRA added.