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Methodology | Non-Banking Finance Companies Rating | Jun-22
Sector Study | Leasing & Finance Companies | Jun-22
LRA Assigns Initial Rating to PMF Finance PLC
The rating reflects the small relative position of PMF Finance PLC (PMF or the Company) in the leasing and finance sector. Following the change in ownership from People's Bank to Sterling Capital Investments (Pvt) Ltd. (SCI) in 2019, the Company's management changed which improved the performance of the Company. PMF intends to follow its five-year strategic plan and achieve an LKR 25bn asset base and an LKR 1bn profit after tax by FY26. Due to the current economic conditions, the Company plans to focus on short-term lending products. Subsequent to the rights issue in March and December 2021, it increased its Capital Adequacy Ratio (CAR) to ~37.7% as of FY22. It however decreased to~31% as of 1HFY23. The sponsorship PMF receives from Sterling Capital Investments (Pvt) Ltd. (SCI) will provide comfort for the Company to obtain foreign funding in the future. Despite the unstable economic conditions in the country, PMF recorded gross and net Non-Performing Loans (NPL) of ~7.2% and ~1.5% as of 1HFY23, which are below industry averages. The Net Interest Margin (NIM) took a hit during the six months ended in FY23 to ~41% (FY22: ~62%) as a result of the considerable rise in interest expenses. The core spread of the Company reduced to ~4.3% as of 1HFY23 due to the significant escalation of deposit cost in the macro environment. Going forward, the Company's ability to expand its portfolio, whilst maintaining its credit risk would be critical for the Company.
The rating is dependent on the Company's ability to navigate its way through unpredictable macroeconomic conditions. Any upward revision in the ratings will be dependent upon improving the quality of the portfolio while managing the book well under these macroeconomic conditions. The Company's ability to geographically diversify whilst maintaining low operational costs will be critical. The rating will rely on the management of credit risk and maintaining the quality of the portfolio
PMF Finance PLC (PMF) is a public limited liability company incorporated in 1983 under the Companies Act No. 17 of 1982. It was listed in the Colombo Stock Exchange in 1994. The largest shareholder of the Company is Sterling Capital Investments (Pvt) Ltd. and owns ~81.6% of the Company. The Board of Directors has five Non-Executive directors, out of which three are Independent directors and two are Non-Independent directors. The management team is headed by the Chief Executive Officer (CEO), Mr. Nalin Wijekoon and he possesses over 40 years of experience.