Fitch Ratings Lanka affirmed Sri Lanka-based AMW Capital Leasing and Finance PLC's (AMCL) National Long-Term Rating at 'BB-(lka)'. The Outlook is Stable.
The rating reflects AMCL's relatively weak deposit franchise among finance companies, modest capitalization and better asset quality metrics. AMCL's rating is a reflection of its stand-alone financial strength, and as such already factors in ordinary support from parent Associated Motorways Limited (AMW).
Fitch believes that AMCL may be under pressure to increase its asset base by 27% to LKR8bn from an asset base of Rs 6.3 billion as at end-June 2014 before the end of this year. This is in line with the government's master plan to consolidate the financial system, according to which the consolidation in the non-bank financial institution segment is based on the asset and capital bases of the players. A rush to expand amid a weak economy could raise AMCL's credit risk profile. The company's assets rose 14% in 1H14 from Rs 5.5 billion as at end-2013 (2013: 15% and 2012: 31%).
AMCL continues to have access to local wholesale funding, and it has unutilized credit lines that are sufficient to cover gaps arising from the mismatches in the maturities of its assets and liabilities. AMCL's external borrowings and borrowings channelled through .its parent accounted for 64% and 10% respectively of total assets at end-1H14 (end-2013: 37% and 33%). The high proportion of borrowings could lead to liquidity pressure in the event AMCL is unable to source such funding directly or through the parent. Fitch's view is that liquidity can erode rapidly in times of stress.
AMCL's deposit base of Rs 657 million accounted only for 14% of its total funding at end-1H14 (end-2013: 6.5%; end-2012: 0.1%) and has a relatively high deposit concentration. Fitch does not expect the share of deposit funding to increase given AMCL's management intends to continue to rely on wholesale funding.
Fitch expects AMCL's capitalization to continue to decline due to its expanding operations but to remain at a satisfactory level for its current rating. Fitch may take positive rating action if AMCL develops its franchise, both in funding and lending, while maintaining its financial profile relative to higher-rated peers.
Deterioration in the company's liquidity profile, asset quality, or capitalization to levels below its peers would place downward pressure on AMCL's rating.
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The rating reflects AMCL's relatively weak deposit franchise among finance companies, modest capitalization and better asset quality metrics. AMCL's rating is a reflection of its stand-alone financial strength, and as such already factors in ordinary support from parent Associated Motorways Limited (AMW).
Fitch believes that AMCL may be under pressure to increase its asset base by 27% to LKR8bn from an asset base of Rs 6.3 billion as at end-June 2014 before the end of this year. This is in line with the government's master plan to consolidate the financial system, according to which the consolidation in the non-bank financial institution segment is based on the asset and capital bases of the players. A rush to expand amid a weak economy could raise AMCL's credit risk profile. The company's assets rose 14% in 1H14 from Rs 5.5 billion as at end-2013 (2013: 15% and 2012: 31%).
AMCL continues to have access to local wholesale funding, and it has unutilized credit lines that are sufficient to cover gaps arising from the mismatches in the maturities of its assets and liabilities. AMCL's external borrowings and borrowings channelled through .its parent accounted for 64% and 10% respectively of total assets at end-1H14 (end-2013: 37% and 33%). The high proportion of borrowings could lead to liquidity pressure in the event AMCL is unable to source such funding directly or through the parent. Fitch's view is that liquidity can erode rapidly in times of stress.
AMCL's deposit base of Rs 657 million accounted only for 14% of its total funding at end-1H14 (end-2013: 6.5%; end-2012: 0.1%) and has a relatively high deposit concentration. Fitch does not expect the share of deposit funding to increase given AMCL's management intends to continue to rely on wholesale funding.
AMCL's reported regulatory gross NPL ratio stood at 2.1% at end-2013, better than the industry average of 6.7%. However, Fitch expects the NPL ratio to increase due to the challenging operating environment and as the loan book seasons. The company has been shifting towards providing financing for more non-AMW brand vehicles as it seeks to expand its loan book while increasing its market share of AMW products. AMW brand vehicles remain a significant part of its loan portfolio as at December 2013.
Fitch expects AMCL's capitalization to continue to decline due to its expanding operations but to remain at a satisfactory level for its current rating. Fitch may take positive rating action if AMCL develops its franchise, both in funding and lending, while maintaining its financial profile relative to higher-rated peers.
Deterioration in the company's liquidity profile, asset quality, or capitalization to levels below its peers would place downward pressure on AMCL's rating.
www.ceylontoday.lk
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