The rating affirmation reflects VFIN's strong asset quality, consistent financial performance, and continued sponsor support as reaffirmed through an equity infusion via the recent rights issue. The Company has undertaken very high growth, which has moderated capitalization buffers despite the equity injection.
VFIN's profitability improved during FY26, with PAT rising to LKR ~3.6Bn (FY25: LKR ~2.6Bn), supported by lower funding costs, strong portfolio growth, and stable spreads. Despite this improvement, ROA moderated to ~2.46% (FY25: ~2.57%), remaining below the industry average, as earnings have yet to match the rapid asset growth. In contrast, ROE improved to ~21.65% (FY25: ~18.72%). Asset quality metrics remained strong during FY26, with gross and net NPL ratios reducing to ~2.53% and ~1.07% respectively, both well below industry averages. This is a key distinction of the Company, primarily driven by strong recoveries. Meanwhile, strong expansion of the loan portfolio also lowered these ratios.
The Company's capital profile weakened during FY26, as portfolio expansion outpaced internal capital generation, driving the Capital Adequacy Ratio (CAR) down to ~14.79% (FY25: ~21.51%). To support its capital base, the Company completed a rights issue of LKR ~2Bn in May 2026, which increased the CAR to ~15.7%. However, the ratio remains below the industry average of ~18.4%. The Company's envisaged growth plans and sustained portfolio expansion could put pressure on capitalization in FY27.
The Company's deposit base grew by ~23.7% to LKR ~83.5Bn during FY26, though its share in the overall funding mix declined to ~53% (FY25: ~73%), as the proportion of borrowings increased, consistent with the broader trend observed across the LFC Sector. Liquidity remained adequate during FY26, supported by a sizeable allocation to G-Secs, which accounted for ~76.4% of total investments (FY25: ~86.5%). However, the top 20 depositor concentration remained elevated at ~22.6%, exceeding peer levels and indicating a degree of funding concentration risk.
The rating continues to depend on the Company's ability to sustain asset quality and profitability while rebuilding and maintaining adequate capital buffers commensurate with its growth trajectory. Adverse trends, particularly a further weakening of capital ratios, deteriorating asset quality, or increased funding concentration would have negative rating implications.