ECONOMYNEXT - Fitch Ratings said it has assigned Sri Lanka's Richard Pieris Finance Ltd. a BBB+(lka) long-term credit rating with a stable outlook on weak underwriting standards and risk controls, and limited synergies with listed parent Richard Pieris and Company Plc.
Richard Peiris and Company (RICH) has businesses in retail with its Arpico supermarket chain, plantations, tyre manufacture, furniture, and rubber and plastic. The share was trading 10 cents lower at 10 rupees on Thursday.
"RICH's ability to support Richard Pieris Finance is reflected in its rating, which is underpinned by its standalone strength. However, its relatively large size means that any required support could be considerable relative to the ability of the parent to provide it," Fitch said in a statement Thursday.
The finance company has a 'heightened' risk appetite, the ratings agency said.
"This is evident in its weak underwriting standards and risk controls.
"As a result, Richard Pieris Finance's gross non-performing loans ratio was at 9.5 percent end-March 2018, well above the industry average of 5.8 percent," Fitch said.
Fitch Ratings' statement in full:
Fitch Ratings Lanka Limited has assigned Richard Pieris Finance Limited (RPF) a National Long-Term Rating of 'BBB+(lka)'. The Outlook is Stable.
-Key rating drivers: National rating-
The rating on RPF is driven by institutional support from its parent, Richard Pieris & Company PLC (RICH, A(lka)/Stable). This reflects Fitch's belief that RICH has high propensity to support RPF, if needed. Our assessment takes into account the parent's 98% effective control of RPF and their common brand name.
RICH's ability to support RPF is reflected in its rating, which is underpinned by its standalone strength. However, the relatively large size of RPF means that any required support could be considerable relative to the ability of the parent to provide it. RPF's total assets and equity accounted for 24% and 15.6% of RICH's group assets and equity respectively, at end-March 2018.
RPF is rated two notches below its parent because of its limited contribution to the group's core businesses. Despite its relative size, RPF's synergies with its parent are limited as the subsidiary's role in facilitating group's core business is low. Furthermore, RPF's integration with the group is low as the subsidiary exercises considerable management and operational independence.
RPF's standalone rating is weaker than its support-driven rating mainly due to its heightened risk appetite, which is evident in its weak underwriting standards and risk controls. As a result, RPF's reported gross NPL ratio was at 9.5% at end-March 2018, well above the industry average of 5.8%. RPF's loan-loss coverage ratio decreased sharply by end-March 2018.
RPF is likely to need additional capital in the medium term in order to meet the enhanced total capital ratio requirement of 12.5% by 1 July 2021 and its loan growth expectations. RPF's capital levels are currently satisfactory, with both Tier I and total capital ratios at 16.8% at end-March 2018, which is above the regulatory minimum of 5% and 10% respectively.
RPF is likely to rely on wholesale funding in the medium term to support its future expansion, although the company started soliciting deposits in the financial year ended 31 March 2018 (FY18).
-Rating sensitivities: National rating-
Weakening links with the parent, including declining parental control or importance to the group, or a downgrade of RICH's National Long-Term Rating, could trigger a rating downgrade on RPF.
Fitch believes a rating upgrade will depend on an upgrade of RICH or a significant increase in RPF's role and/or strategic importance to its parent.
Richard Peiris and Company (RICH) has businesses in retail with its Arpico supermarket chain, plantations, tyre manufacture, furniture, and rubber and plastic. The share was trading 10 cents lower at 10 rupees on Thursday.
"RICH's ability to support Richard Pieris Finance is reflected in its rating, which is underpinned by its standalone strength. However, its relatively large size means that any required support could be considerable relative to the ability of the parent to provide it," Fitch said in a statement Thursday.
The finance company has a 'heightened' risk appetite, the ratings agency said.
"This is evident in its weak underwriting standards and risk controls.
"As a result, Richard Pieris Finance's gross non-performing loans ratio was at 9.5 percent end-March 2018, well above the industry average of 5.8 percent," Fitch said.
Fitch Ratings' statement in full:
Fitch Ratings Lanka Limited has assigned Richard Pieris Finance Limited (RPF) a National Long-Term Rating of 'BBB+(lka)'. The Outlook is Stable.
-Key rating drivers: National rating-
The rating on RPF is driven by institutional support from its parent, Richard Pieris & Company PLC (RICH, A(lka)/Stable). This reflects Fitch's belief that RICH has high propensity to support RPF, if needed. Our assessment takes into account the parent's 98% effective control of RPF and their common brand name.
RICH's ability to support RPF is reflected in its rating, which is underpinned by its standalone strength. However, the relatively large size of RPF means that any required support could be considerable relative to the ability of the parent to provide it. RPF's total assets and equity accounted for 24% and 15.6% of RICH's group assets and equity respectively, at end-March 2018.
RPF is rated two notches below its parent because of its limited contribution to the group's core businesses. Despite its relative size, RPF's synergies with its parent are limited as the subsidiary's role in facilitating group's core business is low. Furthermore, RPF's integration with the group is low as the subsidiary exercises considerable management and operational independence.
RPF's standalone rating is weaker than its support-driven rating mainly due to its heightened risk appetite, which is evident in its weak underwriting standards and risk controls. As a result, RPF's reported gross NPL ratio was at 9.5% at end-March 2018, well above the industry average of 5.8%. RPF's loan-loss coverage ratio decreased sharply by end-March 2018.
RPF is likely to need additional capital in the medium term in order to meet the enhanced total capital ratio requirement of 12.5% by 1 July 2021 and its loan growth expectations. RPF's capital levels are currently satisfactory, with both Tier I and total capital ratios at 16.8% at end-March 2018, which is above the regulatory minimum of 5% and 10% respectively.
RPF is likely to rely on wholesale funding in the medium term to support its future expansion, although the company started soliciting deposits in the financial year ended 31 March 2018 (FY18).
-Rating sensitivities: National rating-
Weakening links with the parent, including declining parental control or importance to the group, or a downgrade of RICH's National Long-Term Rating, could trigger a rating downgrade on RPF.
Fitch believes a rating upgrade will depend on an upgrade of RICH or a significant increase in RPF's role and/or strategic importance to its parent.
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