Fitch affirms Siyapatha Finance at ‘A(lka)’; Outlook Stable

Fitch Ratings has affirmed Siyapatha Finance PLC’s National Long-Term Rating of ‘A-(lka)’. The Outlook is Stable. The agency has also affirmed the National Long-Term Rating on Siyapatha’s senior unsecured debentures at ‘A-(lka)’ and subordinated debentures at ‘BBB+(lka)’.   

Key rating drivers 

Siyapatha’s rating reflects Fitch’s expectation that the 100% parent - Sampath Bank PLC (A+(lka)/Stable) – would provide extraordinary support to its subsidiary, if needed. Siyapatha is rated two notches below its parent because of its limited role in the group’s core business. The rating also captures Siyapatha’s limited operational and management integration with its parent. 

We regards Siyapatha’s synergies with Sampath as limited, as the subsidiary’s core business line – leasing – only accounted for 8.0% of group loans at end September 2019, with around half of this originating from Siyapatha. Furthermore, Siyapatha’s profit contribution to the group was a low 4.0% of the group’s pre-tax profits. 

Siyapatha’s intrinsic financial profile is constrained by its high-risk appetite, which stems from aggressive loan expansion, with a CAGR of 35.8% over 2015-2018, and elevates the company’s asset-quality risk. This is reflected in the sharp deterioration of Siyapatha’s non-performing loans ratio to 10.0% in 3Q19 (2018: 7.6%), which is higher than the sector’s 9.7%. Our assessment also captures Siyapatha’s already thin capital buffers (3Q19: 8.6%, 2018: 9.4%) that remain under pressure due to rapid loan growth amid weak internal capital generation. 

Siyapatha’s senior unsecured debentures are rated at the same level as its National Long-Term Rating, as they constitute its direct, unconditional, unsecured and unsubordinated obligations. 

Siyapatha’s subordinated debentures are rated one notch below its National Long-Term Rating to reflect their subordination to senior unsecured debt.   

Rating sensitivities 

Siyapatha’s rating could change if Sampath’s rating changes, which would reflect the parent’s ability to support the subsidiary. 

Siyapatha’s rating is also sensitive to a change in Fitch’s assumptions around Sampath’s propensity to provide support. An upgrade could come from a meaningful increase in the significance of Siyapatha’s role in the group, with enhanced integration. Conversely, Fitch may downgrade Siyapatha’s rating if linkage between the parent and the subsidiary weakens. A material dilution of the parent’s ownership could also indicate a reduction of importance and could be rating negative. 

Deterioration in Siyapatha’s Standalone Credit Profile is unlikely to affect its National Rating due to the support-driven nature of the rating. The senior and subordinated debt ratings will move in tandem with Siyapatha’s National LongTerm Rating. 

The subordinated debt is rated under our Bank Rating Criteria, which is currently in the form of an exposure draft. The subordinated debt rating is sensitive to the finalisation of the exposure draft, which includes a proposal to widen base-case notching to two times.   

Public ratings with credit linkage to other ratings 

The ratings of Siyapatha are driven by institutional support from Sampath. A change in Fitch’s assessment of Sampath’s rating would result in a change in the ratings of Siyapatha.