The investment portfolio has shifted structurally toward long-duration T-bonds, now comprising ~82.8% of total investments at LKR ~53.9bn (FY22: ~84.7% T-bills) as the interest rates were declining. However, this also amplifies the higher MTM sensitivity to yield movements due to higher tenor of portfolio. The Company also undertakes spread transactions (reverse repos and others) to supplement income.
Capitalization remained strong, with CAR at ~19.96% in 9MFY26 against the ~10% regulatory minimum. The CAR however remained below the non-bank primary dealer peer average as at FY25. The April 2025 issuance of LKR ~3.0bn in Listed, Rated, Subordinated, Unsecured, Redeemable Debentures further strengthened the capital base.
Funding is concentrated in repurchase agreements at ~93.0% of total liabilities (9MFY26: LKR ~54.6bn; FY25: LKR ~71.5bn), consistent with the primary dealer model and supported by a highly liquid government securities asset base, though the Company remains exposed to rollover risk. Credit risk is minimal given near-total sovereign asset concentration, with residual reverse repo exposure mitigated by G-Sec collateral with haircuts.
The rating remains sensitive to the Company’s ability to sustain its market leadership within the Primary Dealer Sector and to manage interest rate risk prudently through the cycle. An adverse and sustained movement in interest rates resulting in material MTM losses, or a deterioration in the capital adequacy position would exert negative pressure on the rating. Conversely, consistent earnings and performance supported by disciplined portfolio and duration management, creating further capitalization buffers would provide positive impetus over the medium term.