Savindri Hansamala Kuruppu
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Methodology | Non-Banking Finance Companies Rating | Jun-22
Sector Study | Leasing & Finance Companies | Dec-22
LRA Assigns Initial Entity Rating to Vallibel Finance PLC
Vallibel Finance PLC (the Company or VFIN) is a licensed finance company primarily focusing on leases, vehicle loans, auto drafts, and gold loans in Sri Lanka. The ratings reflect their strong presence in the market, their perseverance in the face of turbulent economic conditions in the country. The sponsoring family is a well-established business family in Sri Lanka owning majority stake in the Company, providing them with a much-needed stability. The ownership is exhibited through the major shareholder, Vallibel Investments (Pvt) Ltd, which is owned by the Perera family. VFIN holds ~5% of the industry in terms of assets and ~3% in terms of net assets. The profitability also goes in line as VFIN holds ~5% in the industry profits. On the product mix side, auto drafts, vehicle loans and leases makes up ~70% of the total lending portfolio as at 9MFY23. Whereas ~24% of the portfolio consists of gold loans, which is becoming a preferable domain in the recent times as VFIN is focusing to enhance their credit quality. They have managed to keep their NPL below the industry average reflecting their high efficiencies in recovery. However, this has increased considerably over the last few quarters owing to unfavorable economic situation and regulatory changes. In terms of the loan book, the majority of the book is in short term and helped the Company to roll over once the interest rate has hiked suddenly. Ratings reflect strong capitalization highlighted by the Tier I Capital Adequacy Ratio which was 14.34% and Total Capital Adequacy which stood at 20.04% during 9MFY23 which is well above the requirement. This was supplemented by the LKR 1Bn subordinated term loan given by the Vallibel Group. The ALM mismatch has narrowed in the 1HFY23 to when compared to the FY22 reflecting an impact due to the volatile interest rates.
The outlook reflects deterioration in the major indicators: profitability has shrunken considerably, ROE dropped to 10.1% in 9MFY23 compared to the 27.4% in FY22, ROA has also slumped to 1.38% from 4.04% in FY22, The total debt to equity ratio is showing a thumping figure of 6.2 times. The Company has recorded gross and net NPLs of 8.5% and 4.5% respectively in 120 day NPL as at 9MFY23, though it has increased over the quarters. The lending portfolio has been stagnant in the last few quarters. The Company also has given a corporate guarantee on behalf of Vallibel Properties which is their wholly owned subsidiary.
The rating is dependent on the management's ability to navigate its way through unpredictable macroeconomic conditions while maintaining regulatory requirements and preserving asset quality. The ratings take comfort from the stability coming from its shareholding as a support from the Vallibel Group and the sponsoring family, which remains imperative for the ratings.
Vallibel Finance PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. Subsequent to the acquisition by Vallibel Investment (Pvt) Ltd in 2005, it became Vallibel Finance from Rupee Finance. The principal activities of VFIN are accepting deposits, granting finance leases, vehicle loans, auto drafts, gold loans, mortgage loans, personal loans, and other credit facilities. The Board of Directors consists of seven members of which five are Non- Executive Directors out of which three are independent. Mr. S. B. Rangamuwa acts as the Managing Director and the CEO. He has been heading the management team since 2007.