Fitch Ratings – Colombo – 01 Sep 2021: Fitch Ratings has affirmed LB Finance PLC’s National Long-Term Rating at ‘A-(lka)’. The Outlook is Stable. Fitch Affirms LB Finance at ‘A-(lka)’; Outlook Stable At the same time, Fitch has affirmed the company’s Sri Lankan rupee-denominated senior unsecured debt at ‘A-(lka)’ and rupee-denominated subordinated debt at ‘BBB(lka)’.
“Asset quality risk remains a key concern for overall credit profiles of FLCs such as LB due to their high exposure to customer segments that are more susceptible to deteriorating economic conditions,” Fitch said. LB’s stage 3 (impaired) loans ratio, including facilities over 90 days due, had increased to 11.4 percent by end-FY21 from 10.7 percent at end-FY20.
“Fitch expects asset quality pressures to persist in the near to medium term, due to credit migration amid a challenging operating environment.” The company’s five-month gross non-performing loan ratio worsened to 6.1percent in the first quarter of the financial year from 3.9 percent last year driven mostly by vehicle financing and gold loans where collections were hampered by lockdowns.
It also reflects high profitability from high-yielding products and satisfactory capital levels. This is counterbalanced by a high-risk appetite due to a large and increasing exposure to gold-backed lending. The operating environment in Sri Lanka remains challenging. Sri Lanka’s real GDP contracted by 3.6% in 2020 on disruption stemming from the coronavirus pandemic. Fitch forecasts an economic rebound in 2021 and 2022, but this depends on how the pandemic evolves. Our assessment of the operating environment for Sri Lankan FLCs also incorporates the negative implications for FLCs through the effects on their largely sub-prime clientele and the prolonged restriction on motor vehicle importation. LB’s National Long-Term Rating is driven by its intrinsic financial strength and reflects its established domestic franchise as Sri Lanka’s third-largest finance and leasing company (FLC), accounting for 10% of total FLC sector assets as of the financial year ended March 2021 (FY21).
NATIONAL RATINGS AND SENIOR DEBT RATINGS KEY RATING DRIVERS
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