Lanka Rating Agency provides SDF with initial entity rating BB recognising stable growth

Lanka Rating Agency (LRA) has provided Sarvodaya Development Finance PLC (SDF) with Initial Entity Rating of BB with Outlook Stable.

LRA said the rating reflects the stable growth SDF, has experienced in the past five years and its unique accessibility to the rural sector through the Sarvodaya Movement. The brand name and the legacy of the Sarvodaya Movement add credibility to the company. The company got listed on the Colombo Stock Exchange in December 2021 and has adhered to the statutory requirements for Capital Adequacy Ratio (CAR) and core capital. 

The        company, while having unique access to Small and Medium Enterprises (SMEs) and the rural sector, also faces the risk of the current economic turmoil in the country affecting a large portion of its customer base. SDF has been successfully maintaining its gross Non-Performing Loan (NPL) ratio below industry levels since FY21.    

However, the current economic conditions in the country have impacted its gross NPL levels to increase from 8.9% as of FY22 to 10.8% as of 1QFY23. Steady growth is observed in the company since SDF earned an interest income of Rs. 1.8 billion and       profit-after-tax of Rs. 215 million in FY22, which is a 15% and 18% growth respectively. Ratings           reflect the company’s small industry position given its share of 0.9% in the leasing industry. 

Recently, the company has significantly increased its leasing portfolio which leads to an Advance to Funding ratio of over 150% which amplifies the risk. Going forward, the company’s successful credit risk management of portfolio amidst challenging economic scenario and bringing Advance to Funding ratio below will remain critical for the ratings.

The rating is dependent on the company’s ability to confront the volatile macroeconomic climate persistent in the country and sustain its position. Maintaining its growth momentum will be imperative for the company. The rating will rely on the company’s capability to expand its asset base while preserving the asset quality.