The rating upgrade reflects improvement in the Company's financial risk profile underpinned by better profitability, improved asset quality, and adequate capitalization. The Company’s Net Interest Income (NII) recorded at LKR~2.9bn (FY25: LKR~2.0bn) in FY26, supported by higher interest income of LKR~4.9bn (FY25: LKR~3.9bn) relative to stable funding costs. Accordingly, Net Interest Margin (NIM) improved to ~14.6% (FY25: ~12.4%) in FY26. Profitability remained stable, with Profit After Tax (PAT) recorded at LKR~353mn (FY25: ~LKR 322.4mn) in FY26. In terms of asset quality, the Company's gross and net Non-Performing Loan (NPL) ratios improved to ~4.5% (FY25: ~6.0%) and ~2.9% (FY25: ~4.5%) in FY26, slightly higher than the industry averages of ~4.4% (FY25: ~8.6%) and ~2.4% (FY25: ~4.5%), respectively. This was mainly on account of portfolio growth and better recoveries. The funding base increased to LKR~19.2bn (FY25: LKR~18.1bn) in FY26, remaining primarily deposit-driven while liquidity position remains weak due to higher funding base relative to lower liquid assets. Moreover, the capital position remained adequate with Total Capital Adequacy Ratio (CAR) remaining same at ~15.4%, well above the regulatory minimum requirement of 12.5% but below the industry averages of ~18.5%. However, as per the Company's management, PMF is in process of issuing Trust Certificates of LKR~1.0bn by the end of August 2026, which will improve the total CAR. This is important since higher risk weights assigned to gold loans, as per latest directions of Central Bank, would otherwise impact the CAR.
PMF's funding base primarily is deposit-driven. However, the proportion of borrowings has increased in FY26, as deposits marginally dipped in FY26 to ~LKR 14.1bn (FY25: ~LKR 14.4bn). The concentration of top 20 depositors stands at ~28%. The Company's investments and, in turn, liquid assets came down due to greater focus on expanding the lending portfolio.
The assigned rating is constrained by PMF's relatively small market presence, profitability metrics that remain below those of higher-rated LFCs, a weaker liquidity profile, as reflected in the decline in the liquid assets-to-funding ratio to ~10.9% (FY25: ~14.9%) in FY26, and capital position well below the industry average, but the regulatory minimum core capital requirement stands at LKR~2.5bn.
Going forward, the assigned rating will remain dependent on continued improvement in profitability, further moderation in asset quality, and maintenance of adequate capitalization post Trust Certificates issue. The Company's ability to sustain improvements across key financial and operating metrics, consistent with the current rating category, will remain an important consideration for any positive momentum. Any material deterioration in asset quality, earnings profile, or capital adequacy would exert downward pressure on the rating.