LRA Assigns Initial Entity Rating to Lanka Credit & Business Finance PLC with Rating Watch and "Positive" Outlook

Lanka Credit & Business Finance PLC (‘LCBF’ or ‘the Company’) is a licensed finance company. It offers over various financial services, while primary focus is on term loans, leases and gold loans in Sri Lanka. The Company is in the process of merger with Lanka Cooperative Leasing Company (LCLC) with LCBF as the surviving entity. The merger is expected to be completed in the ongoing year (CY23) once the procedural matters are settled. The "Rating Watch" will be removed once it is completed. The impact of this merger on the Company’s overall position is expected to be positive with improvement in the capital position and the Company's transition into cooperative sector as a niche player. However, any fallout (additional provisions etc.), if materializes, is considered critical and will be incorporated in the rating opinion. The Company intends to increase its agriculture sector penetration where they mainly serve the consumption needs of the customers for business purposes. In a very competitive industry dynamics, LCBF holds a minor share and remain a small player among non-banking financial institutions. The ownership structure holds a prevalent role in Company’s stability. The parent company and major sponsors, Lanka Credit and Business Limited (LCBL), provides support in terms of capital infusion and management expertise. The Company has maintained profitability and adequate liquidity despite tough operating environment. However, the Gross NPLs have been fluctuating just above the industry average for the last three years despite having a small lending portfolio. During 9MFY23, they have managed to keep the NPL below the industry average. LCBF has managed to maintain their capital adequacy ratio at 44.85%, which is well above the regulatory requirement due to limited lending.
The Rating Watch is assigned due to the ongoing merger as the process has yet to be completed with final net asset value and swap ratio to be decided. Moreover, the synergies from merger and positive impact on business and financial profile of the Company has yet to materialize.
The rating is dependent on the management's ability to navigate its way through unpredictable macroeconomic conditions where the interest rates are on the downward trend while maintaining regulatory requirements and preserving asset quality. The ability of the Company to leverage the synergies from the merger is imperative for the rating and will be taken into account accordingly when the merger is finalized.

About the Entity
Lanka Credit & Business Finance PLC (formally known as City Finance Corporation Limited) is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The main shareholder Lanka Credit and Business Limited (LCBL) holds ~72% stake in the Company. The principal activities involve accepting deposits and granting loans mainly term loans, leases and gold loans. The Board of Directors consists of twelve members of which eleven are Non-Executive Directors which includes four Independent Directors. The CEO Mr. Leelananda turned over a new leaf for the Company and he has prior experience in the industry.