(Repeat for additional subscribers)
March 27 (The following statement was released by the rating agency)
Fitch Ratings Lanka has affirmed Siyapatha Finance Limited's (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 - NATIONAL RATINGS AND SENIOR DEBT
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- NATIONAL RATINGS AND SENIOR DEBT
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 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.
The latest research on SLFL is available at www.fitchratings.com and