The net interest income (NII) of the Company increased to LKR~5.3bn in 3MFY26 from LKR~3.5bn in the same period last year due to lower interest expenses and relatively high yield on assets. The Company reported profitability of LKR~2.1bn in 3MFY26 (FY25: LKR~6.0bn), aided by impairment charge reversals amounting to LKR ~565mn during the period. The Capital Adequacy Ratio (CAR) of the Company stood at ~26.37% in 3MFY26, well above the regulatory requirement after obtaining subordinated term loan of LKR~1.5bn with a tenor of 5 years to strengthen its Tier II capital. The granular deposit base bodes well for the funding side. Additionally, the Company has sufficient borrowing lines available from financial institutions. The liquidation of the Company's second-largest shareholder, Group Lease Holdings PTE Limited, as ordered by the Singapore court in March 2024, is not expected to affect CCFP materially. However, any negative repercussions from this would have negative impact on rating. The Company intends to issue Tier 2 Listed Rated Unsecured Subordinated Redeemable High Yield Bonds of LKR~5.0bn to repay maturing bonds and fortify capital position.
The rating watch has been assigned following the sharp increase in the Company’s NPLs, which could weigh on profitability and other key performance indicators. Management’s initiatives to curb NPLs and steer the Company towards sustainable growth will be pivotal. A meaningful reduction in NPLs to levels in line with industry averages, together with sound capitalization and improved profitability would be important.