Sri Lanka Fitch confirms Siyapatha Finance at ‘A(lka)’
COLOMBO (EconomyNext) – Fitch Ratings Lanka has confirmed Siyapatha Finance PLC’s (SLFL) rating at ‘A(lka)’ with a stable outlook.
The rating agency has also confirmed SLFL’s outstanding senior unsecured debentures at National Long-Term Rating ‘A(lka)’ and outstanding subordinated debentures at ‘A-(lka)’.
SLFL’s ratings reflect Fitch’s view that support would be forthcoming from its parent, Sampath Bank PLC, which owns 100 percent of SLFL, if needed.
The full rating report follows:
Fitch Ratings Lanka has affirmed Siyapatha Finance PLC’s (SLFL) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable. The agency has also affirmed SLFL’s outstanding senior unsecured debentures at National Long-Term Rating ‘A(lka)’ and outstanding subordinated debentures at ‘A-(lka)’.
KEY RATING DRIVERS
SLFL’s ratings reflect Fitch’s view that support would be forthcoming from its parent, Sampath Bank PLC (AA-(lka)/Stable), which owns 100% of SLFL, if needed.
SLFL is rated two notches below its parent because the bank continues to fully own SLFL and is involved in the strategic direction of SLFL through board representation. SLFL benefits from funding from its parent which accounted for 15% of SLFL’s total borrowings at end-2014.However, Fitch expects the share of deposit funding to increase as the entity commences deposit mobilization having obtained the status of Licensed Finance Company (LFC) in 2013.
The two notch differential also reflects SLFL’s limited role in the group with leasing accounting for just 4% of group advances at end-2014, of which SLFL provided only 29%. Since its conversion to a LFC, SLFL ceased to share a common brand with its parent while branches situated within Sampath Bank’s premises have also decreased. SLFL’s contribution to group profit remains low, averaging 5% of group profit for the three years from 2012 to 2014. Fitch does not view a potential disposal of SLFL, which is not being planned, as being material to the group.
Fitch expects that SLFL can continue to rely on its parent for capital to support strong loan growth. SLFL’s capitalisation, measured as the ratio of Fitch core capital to weighted risk assets, decreased to 13.8% at end-2014 from 22.5% at end-2011.
SLFL’s outstanding senior debentures are rated at the same level as SLFL’s National Long-Term Rating, as they constitute direct, unconditional, unsecured and unsubordinated obligations of the company.
SLFL’s subordinated debentures are rated one notch below SLFL’s National Long-Term Rating to reflect their subordination to senior unsecured creditors.
SLFL’s rating could change if Sampath Bank’s rating changes or if SLFL’s strategic importance to Sampath Bank changes.
Narrower notching could result from higher importance to the group through greater synergies, shared brand, closer operational integration and higher profit contribution while remaining majority-owned by Sampath Bank.
Any changes to SLFL’s National Long-Term Rating would impact the issues’ National Long-Term Rating.