Thursday Nov 28, 2024
Thursday Nov 28, 2024
Monday, 20 May 2024 02:51 - - {{hitsCtrl.values.hits}}
Lanka Rating Agency (LRA) has maintained the entity rating of Vallibel Finance PLC at BBB+ with Outlook upgraded to Stable.
Vallibel Finance PLC is a licensed finance company primarily focusing on leases, vehicle loans, auto drafts, and gold loans in Sri Lanka. It is a mid-sized player in the LFC industry with assets comprising 5.2% of the total industry.
LRA said the rating reflects the company’s extensive outreach, superior asset quality (VFIN NPLs are well below the industry average) and improving profitability. Although VFIN’s profitability has improved on YoY basis, it still remains below its profitability in FY22. The profitability is expected to remain stable given reduced interest rates and potential re pricing of assets/liabilities leading to better interest margin.
On the product mix side, auto drafts, vehicle loans and leases make up 73% of the total lending portfolio as at 9MFY24. The company intends to build its vehicle loan and gold loan portfolio further as a strategic move. The gross NPL remains lower than the industry, but the NPL of the leasing portfolio remains relatively high due to stagnation of the product.
Majority of the loan portfolio is short-term in nature and would be re priced accordingly. Rating incorporates adequate capitalisation and Tier I Capital Adequacy ratio (15.2%) and total Capital Adequacy ratio (19.8%) during 9MFY24, which is above the regulatory requirement but is on the lower end when compared to industry average. The gearing ratio remains high (9MFY24: 6.1; FY23: 6.2x).
The asset liability mismatch is positive in the short where 35% of advances and 78% of the investment in Government securities are maturing, while it is negative in the long-term reflecting
Short -term nature of the advances portfolio.
The rating outlook has improved to “Stable” considering better profitability, sustained asset quality and other indicators including ROE and ROA. The lending portfolio was stagnant in FY23 while it has grown by 4% in 9MFY24. The company continues to maintain its deposits base with high retention rate.
The rating is dependent on sustaining the asset quality and improving the profitability of the company. Strengthening capitalisation and adhering to prudent lending will be critical while VFIN expands its branch network and advances portfolio. Any significant decline in profitability or adverse interest rate or market price movement leading to revaluation losses would impact the rating negatively, LRA said.
