Fitch affirms People’s Leasing at ‘B+’; Outlook Stable
Monday, 22 September 2014 00:00
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Fitch Ratings has affirmed Sri Lanka-based People’s Leasing & Finance Company PLC’s (PLC) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘B+’. The agency has also affirmed PLC’s National Long-Term Rating at ‘AA-(lka)’. The Outlook on the ratings is Stable.
KEY RATING DRIVERS - IDRs, NATIONAL RATING AND DEBT
PLC’s IDRs and National Long-Term Rating reflects Fitch’s view that PLC’s parent, the state-owned and systemically important People’s Bank (AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required. This is because PLC is strategically important to People’s Bank; People’s Bank owns 75% of PLC and has board representation; the two entities share a common brand; and PLC is associated with People’s Bank’s franchise.
In 2013, PLC accounted for about 11% of the People’s Bank group assets, and contributed about 37% of its post-tax profits. Apart from its own branches, PLC also operates 109 window offices within branches of People’s Bank.
It is likely that state support will flow to PLC through People’s Bank due to their strong linkages. PLC’s association with the People’s Bank brand and therefore with the state, and the consequent reputational risk to the state should PLC fail, also supports Fitch’s view.
People’s Bank’s limited ability to provide support to PLC stems from its own ‘AA+(lka)’ rating, which is driven by the government of Sri Lanka’s (BB-/Stable) high propensity but moderate ability to provide support to the bank under extraordinary situations.
The two-notch differential between the National Long-Term Ratings of PLC and People’s Bank reflects Fitch’s view that timely support from the state may be constrained by regulatory restrictions between the entities (such as maximum exposure limits) or administrative delays usually seen in layered support structures. PLC’s Sri Lanka rupee-denominated senior unsecured debentures are rated at the same level as PLC’s National Long-Term Rating of ‘AA-(lka)’ as they constitute unsecured and unsubordinated obligations of the company.
In a trend seen across the sector, PLC’s asset quality has declined, although its asset quality indicators remain stronger than its domestic peers’. After PLC’s conversion to a finance company in November 2012 and its merger with former subsidiary People’s Finance PLC in April 2013, deposits increased to almost half of funding. Fitch believes that as PLC’s deposit base expands, its reliance on wholesale funds and therefore its refinancing risk should reduce.
PLC is the largest non-bank financial institution (NBFI) in Sri Lanka in terms of assets, with a 16% share of sector assets at end-2013. Fitch believes that some rationalisation of NBFIs within the People’s Bank group, is possible in line with the government’s master plan to consolidate the financial system.
RATING SENSITIVITIES - IDRs, NATIONAL RATING AND DEBT
PLC’s ratings may be downgraded if People’s Bank is no longer a majority shareholder in PLC, or if People’s Bank’s ability to provide support weakens, or if PLC’s strategic importance to its parent diminishes over time.
Fitch does not expect PLC’s ratings to be upgraded, unless People’s Bank’s ratings are upgraded.
A full list of rating actions follows:
Long-Term Foreign-Currency IDR: affirmed at ‘B+’; Outlook Stable
Long-Term Local-Currency IDR: affirmed at ‘B+’; Outlook Stable
National Long-Term Rating: affirmed at ‘AA-(lka)’; Outlook Stable
Sri Lanka rupee-denominated senior unsecured debentures: affirmed at ‘AA-(lka)’
