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Gayani Randima Ariyawansa
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Applicable Criteria

  • Methodology | Non-Banking Finance Companies Rating | Jun-22

Related Research

  • Sector Study | Leasing & Finance Companies | Aug-23

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LRA Maintains Entity Rating of Alliance Finance Company PLC

Rating Type Entity
Action Maintain Initial
Long Term BBB- BBB-
Outlook Stable Stable
Rating Watch - -

Alliance Finance Company PLC ("AFC" or "the Company") is a Licensed Finance Company (LFC) listed on the Colombo Stock Exchange since 1959. It is relatively a mid sized player in the LFC industry with assets comprising ~3.4% of total industry. AFC being the oldest finance company in the country has adopted the Triple Bottom Line (TBL) philosophy in 2012 and plans to develop its products in line with these values driven to a sustainable business mandate. The rating reflects the Company's known brand and sustained performance over the years. AFC's profitability remains constrained due to relatively small ticket size as three-wheeler segment has the highest contribution (~28%) in advances portfolio. The Company currently records Capital Adequacy Ratio (CAR) of ~13.66% as of 9MFY24 (FY23: ~16.55%), moderately above the ~12.5% Central Bank of Sri Lanka (CBSL) statutory requirement, but it remains on the lower side as compared to its peer companies. The NPLs ratio is below industry average but increased to ~15.29% in 9MFY24 (FY22: ~3.64%; FY23: ~13.12%) due to change in classification of Days Past Due from 180 to 90 days and pressure on certain segments. AFC's Net Interest Income (NIM) increased to LKR~4bn in 9MFY24 compared to LKR~3.6bn in 9MFY23, a growth of ~12.5% YoY. Similarly, AFC's net profit stood at LKR~505mn in FY23 and LKR~493mn in 9MFY24. With declining interest rates, AFC is expected to reprice its liabilities to strengthen its NIM. The Company intends to expand its operations on the 4-wheeler segment, going forward. Stiff competition is expected in the segments as other LFCs also target growth. AFC will face fierce competition. AFC intends to build on its triple bottom line initiatives and introduce more products to enhance its presence.
The rating is dependent on successful completion of envisioned growth plans on asset and liabilities side. Similarly, sustaining profitability trends and improving asset quality indicators remain critical. Diversification in advances portfolio with high margins and better profitability and improvement in CAR will impact the rating positively.

About the Entity
Alliance Finance Company PLC ("AFC" or "the Company") is a public limited company incorporated in 1956 under the provisions of the Companies Ordinance No. 51 of 1938 and re-registered under the Companies Act No. 07 of 2007. The largest shareholder of the Company remains Mr. R K E P De Silva with ownership of ~35.22%. The Company has a seven-member Board of Directors with three Executive directors and four Independent Non-Executive directors. The Management team is headed by Mr. De Silva who leads the Company as the Managing Director and the Deputy Chairman as well.

The primary function of LRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. LRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. LRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.