Lanka Rating Maintains Entity Rating of SMB Finance PLC

SMB Finance PLC (“SMBF” or “the Company”), established in 1992, is engaged in providing finance leases, mortgage loans, and gold-backed loans, in addition to accepting public deposits. SMBF obtained its license to operate as a licensed finance company in December 2022. Prior to this, the Company operated as a specialized leasing company and underwent various ownership changes. The Company’s credit rating incorporates its small scale of operations, modest profitability, and very high non-performing loans (NPLs). Meanwhile, the Company maintains a healthy liquidity position and strong capitalization. As of FY25, SMBF represented ~0.29% of the Licensed Finance Companies (LFC) sector’s total asset base and just ~0.22% share in sector profitability, consistent with the prior year.
The Company’s lending portfolio comprises both recent disbursements and legacy loans carried forward from its former sponsorship of Seylan Merchant Bank. The weak asset quality remains a concern as gross NPL ratio stands at ~31.8% as at 3MCY25, well above the industry average. The Company maintains high provisions against these NPLs. The growth in advances portfolio was around 26% despite a small base. The investment portfolio of the Company comprises placements with banks at relatively lower net yields. Net interest income grew to LKR~104mn in 3MCY25 from LKR~90mn in 3MCY24 (CY24: LKR~348mn). The Company’s core interest spread grew to ~9.4% in 3MCY25 from the 3MCY24 level of 8.8% (CY24: ~9.3%). The profit after tax improved slightly to LKR~24mn in 3MCY25, compared to LKR~15mn in 3MCY24 (CY24: LKR~151mn) mainly on the back of reversal of certain provisioning due to improved recovery actions on NPLs.
SMBF's main source of funding remained bank borrowings as deposit base stood at only LKR~214mn showing limited franchise value of the Company. LKR~137mn has been funded through long-standing debt instruments such as promissory notes and debentures. SMBF's liquidity position, as measured by liquid assets to funding, remains very strong as SMBF has majority of these funds deposited in banks. SMBF’s capital adequacy ratio stood at ~90.8% against the regulatory minimum of 12.5% as a result of having a strong capital base coupled with a low risk-weighted asset base for both credit and operational risks. SMBF has taken certain initiatives to strengthen its risk management framework to supplement its growth plans. The Company intends to mobilize deposits to the tune of LKR 1bn and also increase its gold loan portfolio.
The rating is dependent on SMBF’s ability to achieve profitable growth while improving its asset quality and implement a viable, long-term growth model. Meanwhile, improving spread and diversifying funding base is critical. Deterioration in capitalization and liquidity parameters would have negative rating impact. Establishing strong systems and controls to ensure sustainability is important.

About the Entity
SMB Finance PLC (“SMBF” or “the Company”) is a public limited liability company which was established in 1992. It was listed in the Colombo Stock Exchange (“CSE”) in 1993. The controlling shareholder of the Company is Mr. H R S Wijeratne, who is also the Chairman. SMBF has a seven-member-board consisting of six Non Executive Directors (NEDs) and one Executive Director, Mr. Supul Wijesinghe, who is also the CEO. Three of the NEDs are independent while the other three are non-independent.