Fitch Upgrades Singer Finance Lanka Ltd to 'BBB(lka)'

Fitch Ratings Lanka has today upgraded Singer Finance (Lanka) Limited's (SFL) National Long-term rating to 'BBB(lka)' from 'BBB-(lka)'. The Outlook is Stable.

The upgrade reflects the increased level of support available from its parent, Singer Sri Lanka PLC (SSP; 'A-(lka)'/Stable), and in the agency's view, SFL's increased strategic importance to SSP. The two companies share the 'Singer' brand; and from early 2009, along with the traditional lending business SFL started providing consumer financing for SSP's locally-assembled products. SSP infused LKR200m of equity into SFL in October 2009 and channelled LKR833m of borrowings to SFL at end-December 2009 to support SFL's portfolio growth. SFL contributed to a 38.3% of group pre-tax profit in the 12 months to end-December 2009 (12 months to end-December 2008: 15%). 

SFL's loan portfolio grew 48% in the nine months to end-December 2009 (9M10) following the transfer of the financing of SSP's locally-assembled products. SSP manages the consumer durable portfolio for a fee. The shorter tenure and small-ticket nature of these loans, combined with the stringent credit evaluation followed by SSP, has enabled the company to maintain a low (three-month) gross NPL ratio of 2.6% at December 2009 on this segment. Although the proportion of gross NPLs on SFL's vehicle financing portfolio was higher at 6.9% at December 2009, this compares well with its peers (average of 10.8% at end-September 09). Fitch notes that SFL's provisioning policy is more stringent than regulatory requirements, and consequently the loan loss coverage was higher at 36.9% at end-9M10 (peers at end-H110: 29.2%).

SFL's net interest margins (NIM), which were on a declining trend until FY09, widened to 14.4% in 9M10, driven by falling funding costs and by an increased investment in higher-yield consumer durable financing. However, despite wider NIMs, profitability as measured by ROA fell to 1.3% (FY09: 1.4%) on the back of higher operating and provisioning costs and a higher effective tax rate. Operating costs increased to 8.9% of average assets in 9M10 (FY09: 7.2%) driven by increased cost allocations by SSP given the newly transferred consumer durable financing business. 

SFL is a registered finance company and a fully-owned subsidiary of SSP. It has a network of five branches and five service centres in Sri Lanka.

A credit analysis report will be available shortly on Fitch's websites www.fitchratings.com and www.fitchratings.lk

Applicable criteria available on Fitch's website www.fitchratings.com: 'Master Global Financial Institutions Criteria', dated 31 December 2009; 'Finance and Leasing Companies Criteria', dated 31 December 2009; and 'Rating Linkages in Parent and Non-bank Financial Subsidiary Relationships', dated 31 December 2009.