Lanka Rating Agency
10-Feb-23
Analyst
Amreetha Mahindapala
amreetha@lra.com.lk
+94 114 500099
www.lra.com.lk
Applicable Criteria
- Methodology | Non-Banking Finance Companies Rating | Jun-22
Related Research
- Sector Study | Leasing & Finance Companies | Jun-22
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LRA Assigns Initial Rating to Alliance Finance Company PLC
| Rating Type | Entity | |
|
Current (10-Feb-23) |
||
| Action | Initial | |
| Long Term | BBB- | |
| Outlook | Stable | |
| Rating Watch | - | |
Alliance Finance Company PLC (AFC or the Company) is a licensed finance company and the rating reflects the ability of the Company to sustain its performance over the years. AFC adopted the Triple Bottom Line (TBL) philosophy in 2012 and as a result, the Company plans to develop its products in line with these values. The Company was listed on the Colombo Stock Exchange (CSE) in 1959 and currently records a Capital Adequacy Ratio (CAR) of ~14.6% as of 1HFY23. AFC has been successfully maintaining its Non-Performing Loans (NPL) below industry levels despite the volatile economic environment. AFC earned a Net Interest Income (NII) of LKR 5.2bn in FY22, which is a growth of ~22% since the previous financial year. It earned a net interest income as a percentage of interest income of ~66% and due to the high-interest rate environment in 2022, the ratio reduced to ~45% as of 1HFY23. AFC recorded high operating costs which affected its potential to earn higher profits during this period. Ratings reflect the Company's ability to raise foreign currency debt through its TBL initiatives. Its successful introduction of digital products and impact financing products will positively affect the rating in the future.
The rating is dependent on the Company's ability to confront the unstable macroeconomic climate persistent in the country and sustain its position. Financial inclusion and navigating its way through its sustainable initiative will be crucial for the Company. The rating will rely on the Company's ability to expand its portfolio while preserving the asset quality.
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 ~34.53%. The Company has an eight-member Board with four 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.