LRA Assigns Maintains Instrument Rating to Commercial Credit and Finance PLC - LKR 1.3Bn Guaranteed Debentures

Commercial Credit and Finance PLC (CCFP or the Company) is a Licensed Leasing and Finance company in Sri Lanka that specializes in hire purchase, finance leases and gold loans. The Company's ratings reflect its medium-sized position in the leasing industry, sound profitability and asset-backed loan portfolio. The rising Non-Performing Loans (NPL) remain a concern but are below industry average. The total assets of the Company exceeded LKR 100Bn mark, resulting in a market share of around 7% of deposits. The net interest income of the Company reduced in FY23 to LKR 11.1Bn from LKR 11.9Bn in FY22, however, net interest income of 9MFY24 increased to LKR 8.3Bn compared to the same quarter of the previous year of LKR 7.4Bn. The profitability of CCFP declined by 42.5% in FY23 compared to FY22 due to considerable increase in interest expenses outpacing the growth in interest income as the deposit base was repriced to higher rates. The profitability for 9MFY24 shows a growth of 34.4% to LKR 2Bn from LKR 1.5Bn in 9MFY23. Although CCFP has maintained gross NPL ratio below industry levels, NPLs increased from around 4.67% based on loans 180 Days Past Due (DPD) in FY22 to 11.07% (on 120 DPD) in FY23 and 16.15% (on 90 DPD) in 9MFY24. The Company expects to maintain its profitability trends and intends to focus on microfinance loans and asset-backed loans. Given the current economic situation, growth prospects are considered modest for the sector. The Company has strong capitalization and CAR ratio, well above the regulatory requirement. The granular nature of its deposit base bodes well for the funding of the Company.
The debenture's rating is contingent on the continual written guarantee from Hatton National Bank. Any changes in HNB's rating or the removal of the guarantee will result in a negative effect on the debenture's rating.

About the Entity
Commercial Credit and Finance PLC was established as a limited liability company in 1982 under the provisions of the Companies Ordinance No. 17 of 1982 and later re-registered under the Companies Act No. 07 of 2007. In 2011, CCFP was listed on the Colombo Stock Exchange (CSE). The Company's main business activities include accepting deposits, providing lease facilities, hire purchase, term loans, personal loans, microloans, pawning, other credit facilities, real estate development, and related services. The main shareholder is B.G. Investments (Pvt) Ltd (50.25%) and is governed by a Board of 10 members. The CEO, Mr. R. S. Egodage, is supported by a capable management team.

About the Instrument
LKR 1,287Mn Senior, Listed, Redeemable, Rated, Guaranteed Debentures currently has LKR 1,287Mn Senior, Listed, Redeemable, Rated, Guaranteed Debentures each worth LKR 100/-. The debentures' tenure spans a maximum period of 5 years. The debenture was opened for subscription on 24th February 2021 and closed on 24th February 2021. The objective of the issue was to provide the necessary stable funding for 5 years and more and to further expand the lending portfolio of the entity. The debenture is guaranteed by Hatton National bank in form of a letter of guarantee, for LKR 2.3Bn, being the principal sum and two interest payments at 9.00% per annum payable annually, for two interest periods on the said Debentures.