Lanka Rating Upgrades Entity Rating of Associated Motor Finance Company PLC

After a tumultuous period of around two years, Sri Lanka's economy has recovered substantially in 2024. The GDP grew at ~5.2% in 3Q24 as other major economic indicators improved. Inflation continues to decline (-2.1% YoY in November 2024) with stable currency and interest rates in single digits. The improved conditions have reduced country as well as systemic risk. This had a positive impact on the Licensed Finance Companies (LFCs) in Sri Lanka. Total assets of the LFC sector grew by ~12.2% at the end of 6MFY25 while asset quality improved (Gross NPL ratio 6MFY25: ~12.0%; 6MFY24: ~20.3%) due to growing loans and advances and better repayment capacity of borrowers. Associated Motor Finance ("AMF" or "the Company") is a small player in the LFC sector and is primarily engaged in leasing vehicles, mainly the 2-wheeler segment. The rating reflects sizeable growth in the Company's portfolio, improved profitability, and strong liquidity position. The Company has managed to increase its leasing portfolio with a rising share of the 2-wheeler segment due to import restrictions and lower purchasing power. AMF’s net interest income has shown an increase of ~59% in 9MFY25 on a YoY basis due to higher asset yield and relatively lower funding cost. The Company posted a net income of LKR~393.1mn in 9MFY25 (FY24: LKR~318.2mn). AMF's Liquidity has also improved as the liquid assets to total assets ratio stood at ~31.9%. The rating is constrained by the relatively small position of AMF. The Company also has higher gross and net non-performing loans (NPLs) than the industry average as its target market largely pertains to middle to low-income groups. The Company has adequate CAR (9MFY25: ~15.5%) and a net capital base of LKR~3.6bn. AMF is expanding its motorcycle financing portfolio through market diversification, including customer segmentation, geographic expansion, risk-based underwriting, and product bundling.
The rating is dependent on the Company’s ability to sustain its performance in terms of growth and profitability while preserving asset quality. Reducing non-performing loans (NPLs) in line with the industry is important. Any notable increase in credit risk, resulting in higher provisioning expenses, could negatively affect the rating.

About the Entity
Associated Motor Finance Company PLC (“AMF” or “the Company”), a licensed finance company incorporated in Sri Lanka on July 25, 1962, and registered under the Companies Act No. 07 of 2007 & Monetary Board of the Central Bank of Sri Lanka (CBSL) under the Finance Business Act No. 42 of 2011. AMF was listed on the Colombo Stock Exchange (“CSE”) in 2011.AMF was founded by Mr. J.P.I. Piyadasa in 1962. Arpico Finance Company PLC was amalgamated with Associated Motor Finance Company PLC as of April 2021. Following the amalgamation, Associated Motor Finance Company PLC remains the surviving entity. As of FY24. Mr. Nalatha Dayawansa is the largest shareholder of the Company and holds ~47.1% of the AMF's shares. The second-largest shareholder is Imperial Import & Export Co. (Pvt.) Limited, with a ~25.7% stake in AMF. Imperial Import & Export Co. (Pvt) Limited is a family-owned company of Mr. Nalatha Dayawansa, effectively bringing the family’s ownership to ~72.8%. The Board has ~8 members, ~4 Independent Non-Executive Directors, and ~4 Executive Directors. The chairman is an independent Non-Executive Director.