Banking

Sri Lanka finance company bad loans rising; 9 ratings confirmed: Fitch

Tuesday July 17, 2018 5:45 pm

ECONOMYNEXT – Fitch Ratings has confirmed ratings of nine Sri Lanka finance companies saying the credit profile of the sector will remain under pressure for the medium term with bad loans starting to go up and slower vehicle leasing.

"Competition in leasing from banks and a deceleration in vehicle financing has pushed finance companies to look beyond their core businesses and venture into term financing, microfinance and lending against gold," Fitch said.

"Fitch believes the shift in business mix has raised the companies’ risk profiles in the absence or poor quality of collateral, challenges to the recoverability of collateral and a lack of experience in the new segments. "

By end March 2018, total non-performing loans (six months arrears) has increased to 5.8 percent of assets, from 4.9 percent in 2017.

The sector also faces more stringent capital requirements and potential earning headwinds stemming from higher credit costs.

Extracts from the statement is reproduced below:

KEY RATING DRIVERS IDRS, NATIONAL RATINGS

The rating actions follow Fitch’s periodic review of Sri Lanka’s large and mid-sized finance companies.

Fitch expects the credit profiles of the country’s licensed finance company sector to remain under pressure in the medium term.

Competition in leasing from banks and a deceleration in vehicle financing has pushed finance companies to look beyond their core businesses and venture into term financing, microfinance and lending against gold.

Fitch believes the shift in business mix has raised the companies’ risk profiles in the absence or poor quality of collateral, challenges to the recoverability of collateral and a lack of experience in the new segments.

This has already resulted in the industry’s reported non-performing loan (NPL) ratio (based on six month arrears) increasing to 5.8% at end-March 2018 (FYE18), from 4.9% at FYE17. The sector also faces more stringent capital requirements and potential earning headwinds stemming from higher credit costs.

The ratings of the finance companies in the peer group are driven by their business models and franchises. Risk appetite, another rating driver, reflects the companies’ predominant exposures to more vulnerable customers and non-core business segments.

Finance Companies with Intrinsic Strength-Driven Ratings

Central Finance Company PLC (CF)

CF’s rating reflects its modest franchise and strong capitalisation, which is supported by above-industry profitability and earnings retention. These factors counterbalance its weaker asset quality compared with similarly rated peers, owing to its higher exposure to the risky three-wheeler segment. CF remains the highest capitalised among peers, with regulatory Tier 1 and total capital ratios of 32.9% and 32.1%, respectively, at FYE18. It has demonstrated an ability to maintain better-than-industry net interest margins through the interest-rate cycle and its profitability ratio, as measured by pre-tax net income/average assets, improved to 10.5%, from 7.9% in FYE15, on wider net interest margins, better cost efficiency and lower credit costs.

– LB Finance PLC (LB)

LB’s rating reflects its established franchise and satisfactory capital level, which is supported by sound profitability from high-yielding products. This is counterbalanced by the company’s higher risk appetite due to high exposure to gold-backed lending and elevated liquidity risk, with gross loans accounting for 87% of total assets at FYE18 (FYE17: 89%). LB has the highest leverage ratio among peers, with debt/tangible equity of 6.6x (FYE17: 6.9x). However, its Tier 1 ratio was a satisfactory 17.3% at FYE18 (FYE17: 16.1%). Fitch believes risk from gold-backed lending (FYE18: 19% of gross loans, FYE17: 18%) has been managed through active monitoring and risk-control measures, but a sharp decline in gold prices could pressure asset quality.

– Senkadagala Finance PLC (Senka)

Senka’s rating reflects its strong franchise and well-matched maturity gaps. This is counterbalanced by a low proportion of deposit funding compared with higher-rated peers. We expect Senka’s Tier-1 ratio of 17.0% at FYE18 to come down in the absence of capital infusion, as internal capital generation has not kept pace with above-industry loan growth. The company’s reported NPL ratio increased to 2.3%, from 1.6% at FYE17, but remained below higher-rated peers amid challenging operating conditions.

– Singer Finance (Lanka) PLC (SFL)

SFL’s rating reflects its small franchise and overall stable financial indicators. Capitalisation has been supported through rights issues, the most recent being in FY18. The company’s reported NPL ratio increased, like that of peers, to a still-modest level of 2.1% at FYE18 and asset-quality pressure is likely to persist. SFL’s profitability is better than that of peers’, supported by higher-yielding assets. The rating is underpinned by Fitch’s view that the rating of SFL’s parent, retailing company Singer (Sri Lanka) PLC (A-(lka)/Stable), provides a floor for SFL’s rating that is two notches lower. This reflects Singer’s majority ownership in SFL and the common Singer brand.

– Mercantile Investments and Finance PLC (MIF)

MIF’s rating reflects its long operating history and satisfactory capitalisation. It also captures MIF’s high risk appetite, stemming from relatively weak underwriting standards, evolving risk controls that have affected asset quality and high reliance on concentrated short-term funding that has led to considerable negative maturity mismatches. We expect MIF’s relatively weaker profitability to improve marginally in the medium term, aided by its high-yielding, non-lease products, and for the reported NPL ratio (FYE18: 7.6%) to remain elevated until the resolution of its single-largest NPL account (backed by collateral), which forms half of total NPLs. We attribute MIF’s below-peer NPL provision coverage to the low allowances set aside for its largest NPL account. Finance Companies with Institutional Support-Driven Ratings

– People’s Leasing & Finance PLC (PLC)

PLC’s Issuer Default Rating (IDR) and National Long-Term Rating reflect Fitch’s view that its parent, the state-owned and systemically important People’s Bank (Sri Lanka) (AA+(lka)/Stable), would provide PLC with extraordinary support, if required. People’s Bank’s propensity to support PLC stems from PLC’s group role as a strategically important subsidiary and the high reputational risk to People’s Bank should PLC default, as the bank owns 75% of PLC and shares a common brand. People’s Bank’s ability to provide support to PLC is limited and stems from Sri Lanka’s rating of ‘B+’/Stable.

PLC plays an important role in the group, accounting for 10.3% of People’s Bank’s assets and 11.6% of loans at FYE18. PLC also has 101 window offices within People’s Bank branches and board representation from People’s Bank. PLC’s reported NPL ratio increased to 2.7% at FYE18, from 1.3% at FYE17, due to unsecured term loans – a segment PLC has aggressively grown over FY15-FY17. Nevertheless, its NPL ratio remained better than that peer average.

– HNB Grameen Finance Limited (HGL)

HGL’s rating reflects Fitch’s expectation of support from its parent, Hatton National Bank PLC (HNB; AA-(lka)/Stable), Sri Lanka’s fourth-largest domestic commercial bank. This view is based on HNB’s majority 51% shareholding, its involvement in HGL’s strategic direction through board representation and the common HNB brand. The two-notch differential reflects HGL’s limited role in the group. HGL is mainly engaged in microfinance, which is not a significant product for HNB. Furthermore, there is limited operational integration between the entities.

– AMW Capital Leasing And Finance PLC (AMWCL)

AMWCL’s rating reflects Fitch’s view that support would be forthcoming from Associated Motorways Private Limited (AMW), which owns 90% of AMWCL, given the finance company’s strategic importance to its parent, a large importer of motor vehicles in Sri Lanka. This is based on AMWCL’s role in the group, the common AMW brand and the existence of common creditors, which contribute to high reputational risk for AMW if AMWCL were to default. Fitch sees the synergies between the two companies as high, since almost half of AMWCL’s advances comprise facilities that are provided to clients who purchase AMW products. AMWCL also benefits from business referrals from its parent.

– Siyapatha Finance PLC (Siyapatha)

Siyapatha’s rating reflects Fitch’s expectation that support would be forthcoming from its 100% parent, Sampath Bank PLC (A+(lka)/Stable), which is involved in the strategic direction of the subsidiary through board representation. Siyapatha is rated two notches below its parent because of its limited role to the group’s core business and different branding. Sampath Bank’s leasing book accounted for just 7% of group loans at FYE18, of which half came from Siyapatha. Siyapatha also only accounted for 5% of group pre-tax profit in 2017.

DEBT RATINGS

The ratings on the senior debentures of PLC, CF, LB, Senka, SFL, MIF and Siyapatha are in line with the companies’ National Long-Term Ratings, as they constitute their direct, unconditional, unsecured and unsubordinated obligations.

Fitch has not provided any rating uplift for the collateralisation of CF’s and SFL’s secured notes, as we consider recovery prospects as average and comparable with that of unsecured notes in a developing legal system. Subordinated debentures of LB, Senka and Siyapatha are rated one notch below the companies’ National Long-Term Ratings to reflect their subordination to senior unsecured creditors.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS

Finance Companies with Intrinsic Strength-Driven Ratings

CF’s ratings could be upgraded if its risk appetite moderates, which Fitch does not expect in the medium term. However, the rating could be downgraded if capital buffers are substantially eroded due to weakening asset quality and a prolonged rapid growth in the more vulnerable customer segments.

Downgrade triggers for LB include capital pressure from weaker profitability, increased liquidity risk or heightened risk appetite. This could be indicated through aggressive loan growth or deterioration in asset quality. An upgrade of LB’s rating is contingent on the company achieving stronger capitalisation, lower risky asset exposure and a more comfortable liquidity position.

An upgrade of Senka’s rating is contingent upon the company sustaining stronger capital levels and a more robust deposit franchise. Senka’s rating could be downgraded if asset quality weakens, leading to a significant decline in capitalisation or excessive asset encumbrance.

We do not expect an upgrade of SFL’s ratings from an improvement in its standalone strength, as its franchise is likely to remain significantly weaker than that of its more established, higher-rated peers. The more likely upgrade driver would be a stronger relationship with its parent, in particular, its strategic importance to Singer. A sustained deterioration in SFL’s standalone credit profile in terms of capitalisation and asset quality relative to similarly rated peers would not result in a downgrade of SFL’s rating, unless our assessment of parental support also changed.

MIF’s ratings could be downgraded if its large maturity mismatches were to increase or if it experiences higher capital impairment risk due to sustained deterioration in profitability and asset quality. An upgrade of MIF’s ratings is contingent upon a moderation of its risk appetite, as seen through better underwriting standards and risk controls alongside sustained improvement in asset quality and profitability.

Finance Companies with Institutional Support-Driven Ratings

A downgrade of PLC’s IDR and National Ratings would occur if People’s Bank’s ability to support PLC was to weaken, if People’s Bank’s was to cede its majority ownership in PLC or if PLC’s strategic importance to its parent was to diminish over time, reflecting a reduced propensity to support PLC. However, Fitch does not anticipate this in the foreseeable future. PLC’s ratings are also sensitive to changes in the sovereign rating, as this would affect People’s Bank’s ability to provide support to PLC.

The ratings on HGL, AMWCL and Siyapatha are similarly sensitive to changes in Fitch’s assessment of their respective parents’ ability and propensity to provide support, none of which Fitch expects to change significantly in the short to medium term.

DEBT RATINGS

The ratings on the senior debt of CF, LB, Senka, SFL, MIF, PLC and Siyapatha will move in tandem with the companies’ National Long-Term Ratings.

The assigned subordinated debt ratings will move in tandem with the National Long-Term Ratings.

FULL LIST OF RATING ACTIONS

Central Finance Company PLC: National Long-Term Rating affirmed at ‘A+(lka)’; Outlook Stable Senior secured National Long-Term Rating affirmed at ‘A+(lka)’ Senior unsecured National Long-Term Rating affirmed at ‘A+(lka)’

LB Finance PLC:

National Long-Term Rating affirmed at ‘A-(lka)’; Outlook Stable Senior unsecured National Long-Term Rating affirmed at ‘A-(lka)’ Subordinated debt National Long-Term Rating affirmed at ‘BBB+(lka)’

Senkadagala Finance PLC

National Long-Term Rating affirmed at ‘BBB+(lka)’; Outlook Stable Senior unsecured National Long-Term Rating affirmed at ‘BBB+(lka)’ Subordinated debt National Long-Term Rating affirmed at ‘BBB(lka)’

Singer Finance (Lanka) PLC

National Long-Term Rating affirmed at ‘BBB(lka)’; Outlook Stable Senior secured National Long-Term Rating affirmed at ‘BBB(lka)’ Senior unsecured National Long-Term Rating affirmed at ‘BBB(lka)’

Mercantile Investments and Finance PLC

National Long-Term Rating affirmed at ‘BBB-(lka)’; Outlook Stable Senior unsecured National Long-Term Rating affirmed at ‘BBB-(lka)’

People’s Leasing & Finance PLC:

Long-Term Foreign-Currency Issuer Default Rating affirmed at ‘B’; Outlook Stable Long-Term Local-Currency Issuer Default Rating affirmed at ‘B’; Outlook Stable National Long-Term Rating affirmed at ‘AA-(lka)’; Outlook Stable Senior unsecured National Long-Term Rating affirmed at ‘AA-(lka)’

HNB Grameen Finance Limited:

National Long-Term Rating affirmed at ‘A(lka)’; Outlook Stable AMW Capital Leasing And Finance PLC National Long-Term Rating affirmed at ‘BBB+(lka)’; Outlook Stable

Siyapatha Finance PLC

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)

Markets

Sri Lanka stocks trend lower day after budget reading

Friday November 13, 2026 11:16 am

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange was trending lower on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.66 percent.

The ASPI was down 146.78 points at 22,011, while the more liquid S&P SL20 was down 0.94 percent, or 59.99 points, at 6,306.

Positive contributors to the ASPI were Access Engineering (up 1.30 percent at 85.80 rupees), LAUGFS Gas (up 3.31 percent at 49.90 rupees), Ceylon Tobacco Company (up 1.13 percent at 1,830 rupees), Ceylon Cold Stores (up 0.80 percent at 126 rupees), and Namunukula Plantations (up 1.79 percent at 68.10 rupees).

LOLC Holdings (down 1.03 percent at 409.75 rupees), Hatton National Bank (down 0.61 percent at 409 rupees), Sunshine Holdings (down 3.81 percent at 30.30 rupees), and Sampath Bank (down 1.91 percent at 154 rupees) were top negative contributors.

Market turnover was 1.55 billion rupees. Capital goods led turnover with 459.57 million rupees. (Colombo/Nov13/2026)