People’s Leasing obtains international ratings

People’s Leasing Company PLC has secured the distinction of being the only Sri Lankan non-banking financial institution to secure two international credit ratings.

The company, which is 75 per cent owned by state-owned People’s Bank, secured an international rating equal to the Sovereign from Standard & Poor’s (‘B+/B” Rating) and an international rating one notch below the Sovereign from Fitch Ratings International (‘B+’ Rating); both with a “stable” outlook. This is a reflection of stability resulting from a strong parental linkage and strategic importance of PLC to People’s Bank as a core entity of the People’s Bank Group.

A specialised leasing company, People’s Leasing depends on wholesale funding and is concentrated in commercial vehicle financing and is a key player in the SME market. Nevertheless, it has strong capital and adequate earnings. The largest non-bank financial institution in Sri Lanka in terms of advances and assets, People’s Leasing Company (PLC) had a 21 per cent market share in 2011. At end-March 2012, its total assets and post-tax profits stood at Rs. 79.6 billion and Rs. 4.2 billion, respectively.

“It is a great achievement for us to receive a good rating from two of the world’s leading credit rating agencies,” said PLC’ Chief Executive D.P. Kumarage. “We are proud to be among the handful of Sri Lankan companies that took a brave step of securing two international credit ratings,” he added.

Fitch Ratings said PLC’s credit rating reflects the “capacity and willingness” of People’s Bank to extend extraordinary support in the event of an extreme situation. “This in turn is driven by PLC’s strong association with the People’s Bank brand and its strategic importance to People’s Bank.”

Fitch said PLC also continues to make a sizeable contribution to its parent company’s consolidated post-tax profits, which was 27 per cent in 2011. The leasing company is the third-largest lending segment within People’s Bank accounting for 14 per cent of net advances. At end-March 2012, PLC’s aggregate retail funding within the PLC group, including deposits of its subsidiary – People’s Finance PLC, amounted to over Rs. 23 billion, Fitch further added.

Standard & Poor’s made similar sentiments and reiterated that People’s Bank Group has a strong and long-term commitment to support PLC. “As a specialised leasing company, the PLC is not allowed to access deposits and therefore it depends on wholesale markets for funding,” added Standard & Poor’s. Access to retail funding will be a rating positive which can be obtained with PLC receiving the Finance Company License.

Presently, within the wholesale segment, PLC has reasonably diversified its funding profile to include promissory notes, debentures, bank overdrafts, securitisations, and commercial papers. “Further, PLC benefits from group branding as well as credit lines from its parent,” Standard & Poor’s said.

“PLC’s cost-to-income ratio of about 30 per cent is good, in our opinion,” said Standard & Poor’s who also commend the company for using ‘low-cost window offices’ based inside People’s Bank’s extensive branch network that generates sizeable business.

The credit ratings come after PLC saw its revenues rise nearly 27 per cent in the June quarter, led by growth in its core leasing business. Group revenue rose to Rs. 4,367 million during the third quarter of June 2012, from Rs.

3,433 million reported in the same quarter a year earlier. Recurrent Net Profits of the Group saw an increase of 13.8% in the quarter ending June 2012.

“With economic recovery expected to pick up towards the third and fourth quarter of this year, we expect our performance to improve further,” Kumarage said.