Lanka Rating Agency
17-Jul-23
Analyst
Tharika Prabashwari Kodikara
tharika@lra.com.lk
+94 114 500099
www.lra.com.lk
Applicable Criteria
- Criteria | Rating Modifiers | Jun-22
- Methodology | Non-Banking Finance Companies Rating | Jun-22
Related Research
- Sector Study | Leasing & Finance Companies | Jun-22
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LRA Assigns Initial Rating to Associated Motor Finance Company PLC
| Rating Type | Entity | |
|
Current (17-Jul-23) |
||
| Action | Initial | |
| Long Term | BB- | |
| Outlook | Stable | |
| Rating Watch | - | |
The rating reflects the small relative position of Associated Motor Finance Company PLC (AMF or the Company) in the leasing and finance sector. The Company is primarily engaged in leasing vehicles; primarily in the 2-wheeler segment. Despite challenging economic conditions, the Company has managed to increase its leasing portfolio, a factor of the shift of people from 4-wheeler to 2-wheeler due to lower purchasing power. The net Interest Income of the Company improved due to higher lending and higher interest rates. However, prudent provisioning and change in the categorization of NPL from 180 days to 120 days lead to higher NPL impacting overall profitability. The Company booked a net profit of LKR 200mn lowering by 33% as compared to FY22. The lending book of the Company is largely categorized by asset-backed leasing products which lower credit risk. The rating reflects the Company’s adequate capital position as it meets both equity and CAR requirements with equity of ~2.9bn and CAR of ~17%. Going forward, the Company's ability to expand its portfolio, whilst maintaining its credit risk would be critical for the Company.
The rating is dependent on the Company’s ability to improve its performance while maintaining asset quality. Any significant increase in credit risk leading to higher provisioning expenses can impact the ratings.
About
the Entity
Associated Motor Finance PLC (“AMF ” or “the Company”) was incorporated as a limited liability company in 1962 under the Companies Act No. 51 of 1938 and reregistered under the Companies Act No. 07 of 2007 and the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011. AMF was listed on the Colombo Stock Exchange (“CSE”) in 2011. AMF acquired Arpico Finance Company PLC in 2014 and merged in 2021. The principal place of business is located at No 89, Hyde Park Corner, Colombo 02. Dayawansa family owns directly 47.12% and 25.65% through its wholly owned company, Imperial Imports, and Exports (Pvt) Ltd. The Board of Directors consists of nine directors, out of which, four are Independent Non-Executive directors and four are Executive directors, and one Non-Independent Non-Executive director.