The Company’s core interest spread remains relatively low (6MCY25:~8.2%; CY24: ~9.3%) due to small lending portfolio and funds deployed in bank deposits. SMBF had very modest profitability of LKR~39.0mn in 6MCY25 (CY24: LKR~151mn), supported mainly by provision reversals stemming from improved NPL recoveries. The Company continues to rely primarily on bank borrowings for funding, with deposits amounting to only LKR~274.8mn, reflecting its limited franchise strength. SMBF has raised LKR~138.0mn through long-term funding instruments such as promissory notes and debentures. The Company’s liquidity position remains high, with the liquid assets-to-funding ratio supported by the majority of these funds being placed in banks. SMBF’s capital adequacy ratio stood at ~80.86%, reflecting its strong capital base and relatively low risk-weighted asset exposure. SMBF intends to grow its advances portfolio, especially gold loans, and is issuing high yield, unsecured, senior, redeemable bonds in this regard.
The rating is dependent on SMBF’s ability to deliver sustainable profitability while strengthening asset quality and executing a viable long-term growth strategy in line with peers. Enhancing spreads and diversifying the funding base are also viewed as critical factors. Any weakening in capitalization or liquidity metrics would exert downward pressure on the rating. The establishment of robust systems and controls will be essential to ensure long-term sustainability.