Alliance Finance Company PLC ("AFC" or "the Company") is a Licensed Finance Company (LFC) listed on the Colombo Stock Exchange since 1959. The rating reflects AFC’s established presence, improved profitability, better asset quality and focus on sustainable financing solutions. AFC is the oldest finance company in Sri Lanka and adopted the Triple Bottom Line (TBL) philosophy in 2012. The Company plans to develop its products in line with these values driven by a sustainable business mandate. The Company is classified as a mid-sized LFC, representing approximately ~3.9% of the sector’s assets, ~3.1% of its deposits and ~4.0% of the sector’s total loans and advances as of 9MFY25. The portfolio's diversification with higher-value loan products, leading to lower costs associated with small-ticket lending, has strengthened profitability and improved asset quality. AFC's Net Interest Income (NIM) increased to LKR~5.9bn in 9MFY25 compared to LKR~4.0bn in 9MFY24, a growth of ~48.3% y-o-y. Likewise, AFC's net profit stood at LKR~993.5mn in 9MFY25 (9MFY24: LKR~492.6mn). AFC has invested in people, systems, processes, and sustainability certifications resulting in modest short-term profits but expected to boost long-term sustainability and profitability. The Gross NPL ratio was ~6.8% during 9MFY25, lower than the industry average of ~11.3%. The Company’s Capital Adequacy Ratio stood at ~14.5% in 9MFY25, above the Central Bank of Sri Lanka's (CBSL) statutory requirement of ~12.5% but remains below the industry average. Going forward, AFC is committed to sustainability, reflected in climate-focused products like Cinnamon Cultivators Development and Rooftop Solar Loans.
The rating is dependent on sustaining strong asset quality while aligning profitability and CAR with industry peers. Improved profitability and stronger capitalization would have a positive impact on the rating. Meanwhile, a significant decline in profitability or asset quality could lead to a rating downgrade.