Lanka Rating Upgrades Entity Rating of PMF Finance PLC

After a period of economic and political turbulence, Sri Lanka's economy demonstrated notable recovery in FY25. The country's GDP growth was ~5.0% in FY25, fueled by strong performance in agriculture and services sector. Economic indicators improved significantly, including currency stabilization, single-digit policy rates, and a sharp decline in inflation (-2.0% YoY in April 2025). This positive shift has lowered both country and systemic risk, benefiting Sri Lankan Licensed Finance Companies (LFCs). The LFC sector experienced asset growth of ~13.7% and a substantial improvement in asset quality with the gross Non-Performing Loan (NPL) ratio falling to ~8.3% in FY25 (FY24: ~14.7%). This was due to increased size of lending portfolio and better repayment capacity of borrowers. CBSL's Master Plan for consolidation of NBFIs Phase-II has been revised and is underway now. PMF Finance PLC (“PMF” or “the Company”) is a small player in the competitive LFC sector of Sri Lanka. The principal business activities of the Company are providing Leases, Gold Loans, Term Loans, Margin Trading, Entrepreneur Loans, Mortgage Loan and mobilization of public Deposits. The rating reflects the Company's improved performance as profitability increased along with the asset size and better asset quality. The loan portfolio grew by ~52.8% to LKR ~17.1Bn in FY25, while total assets increased to LKR ~21.6Bn in FY25 (FY24: LKR~16.3Bn). As of FY25, the loan portfolio primarily consists of 3-wheelers (~29.2%), 4-wheelers (~13.0%), 2-wheelers (~4.1%), Gold Loans (~23.0%) and Ikman Draft (~12.4%). PMF’s profitability improved to LKR~322.4Mn (FY24: LKR~19.2Mn), supported by an increase in interest income from LKR~3.0Bn to LKR~3.9Bn. This growth was driven by expansion of the loan portfolio, following a decline in interest rates. PMF demonstrated significant improvement in asset quality, with a Gross Non-Performing Loan (NPL) ratio of ~5.9% as of FY25 (FY24: ~18%), well below the industry average. The rating incorporates modest capitalization and high deposit concentration of the Company. The Capital Adequacy Ratio (CAR) of PMF stood at ~15.8% in FY25 (FY24: ~17.9%), well below the industry average, also limiting its growth potential. PMF’s primary source of funding remains its deposits base (~79%), supplemented by borrowings from banks or capital markets. The top 20 deposit concentration has increased to ~28% in FY25 (FY24: ~23%), reflecting concentration risk. The Company intends to open new branches in high potential areas to increase its footprint and augment growth plans.
The rating is closely linked to sustainability of its recent performance trends amidst strong competition. Maintaining strong asset quality is critical, especially in new loan portfolio. Meanwhile, improving CAR to industry average and meaningful reduction in the depositor concentration would be viewed positively. On the other hand, any deterioration in the factors mentioned would negatively impact the rating.

About the Entity
PMF Finance PLC ("PMF" or "the Company") is a public limited liability company incorporated in 1983 under the Companies Act No. 17 of 1982. It was subsequently re-registered under the Companies Act No. 7 of 2007. PMF was listed at the Colombo Stock Exchange in 1994. The largest shareholder of the Company is Sterling Capital Investments (Pvt) Ltd (~81.6%). The Board comprises of 10 Directors, out of which 8 Directors are Independent Non-Executive Directors including the Chairman (Mr. Chandula Palith Abeywickrema), is a seasoned commercial banker with over 40 years of experience. The management team is headed by the Chief Executive Officer (CEO), Professor Ajith Medis.

About the Instrument
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