Fitch affirms sri lankas central finance at a+(lka)

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(The following statement was released by the rating agency) COLOMBO, September 16 (Fitch) Fitch Ratings Lanka has affirmed Central Finance Company Plc's (CF) National Long-Term Rating at 'A+(lka)' with a Stable Outlook. Fitch has also affirmed CF's senior secured and senior unsecured debt at 'A+(lka) and its subordinated debt at 'A(lka)'. KEY RATING DRIVERS - NATIONAL RATINGS AND DEBT CF's rating reflects its strong capitalisation, which is supported by robust profitability and high profit retention. Counterbalancing these strengths are the pressure on loan quality and its low provisioning levels compared with its peers'. The rating also captures CF's high margins, which are supported by the company's strength in raising funds at relatively low rates through the solid franchise developed over a long operating history. CF has historically maintained strong capitalisation. The regulatory reported Tier 1 capital ratio was 24.92x at end-June 2014 and the Fitch core capital (FCC) ratio was higher at around 40x. The FCC is higher because it captures the revaluation reserves, while the consolidated equity position and the balance sheet equity used are higher due to lower loan impairment charges that are in line with international accounting rules. CF's asset quality continued to be under pressure, with its regulatory non-performing loans (loans overdue by six months or more) increasing to 3.8% at end-June 2014 from 2.45% at end-June 2013. This was due to a slowing macroeconomic environment and the company's exposure to the agricultural sector, which has been adversely affected by unfavourable weather conditions. The regulatory non-performing loans (including interest in suspense) increased by 46% in the financial year ended 31 March 2014 (FY14) and by 18% in 1Q15. The ratio of impairment reserves to gross loans increased to 1.3% at end-June 2014 from 1.0% three months earlier. This is still low compared to peers and implies a lower provisioning coverage. The company has sufficient unutilised credit lines to fund its maturity mismatches. CF's well-established deposit franchise supports liquidity. Customer deposits funded about 50% of CF's assets and were fairly granular with 88% of loan contracts being for loans under LKR1m (USD7,700) at 1Q15. CF's senior unsecured debentures are rated in line with CF's National Long-Term Rating of 'A+(lka)' as they constitute unsecured and unsubordinated obligations of the company. The senior secured debentures, which are secured by a primary mortgage over receivables from identified hire-purchase and lease agreements, are also rated in line with CF's National Long-Term Rating. There is no rating uplift for the collateralisation as the note's recovery prospects are assessed to be average and comparable with those of the unsecured notes in a developing legal system. The subordinated debentures are rated one notch below CF's National Long-Term Rating of to reflect their subordination to senior unsecured creditors. RATING SENSITIVITIES - NATIONAL RATINGS AND DEBT Greater product diversity, together with improved funding flexibility commensurate with higher-rated peers, could lead to an upgrade. However, taking into account the current pressure on its asset quality, Fitch does not see an upgrade as likely in the medium term. CF's rating could be downgraded if it is not able to provide a buffer against further loan quality deterioration through profit, which would lead to an increase in unprovided NPLs relative to equity. The debt ratings will move in tandem with CF's National Long-Term Rating. CF is a Licensed Finance Company established in 1957. It is 22.6% held by the Wijenaike family, the founders of the company, 16.1% owned by Corporate Services (Pvt) Ltd, and the rest is publicly held. The company's lending portfolio consists largely of vehicle financing. Contacts: Primary Analyst Nayantara Bandaranayake Analyst 941 1254 1900 Fitch Ratings Lanka Limited 15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Kanishka De Silva 941 1254 1900 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.this site CF has a 1.79% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at this site Applicable criteria, "Global Financial Institutions Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Recovery Ratings for Financial Institutions", dated 24 September 2013, "Finance and Leasing Companies Criteria" dated 11 December 2012 and "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 5 December 2012 are available at this site Applicable Criteria and Related Research: Finance and Leasing Companies Criteria here Recovery Ratings for Financial Institutions here National Scale Ratings Criteria here Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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