Fitch affirms Central Finance’s ‘A-(lka)’ National Rating, removes RWN; outlook stable

Fitch Ratings: Fitch Ratings has affirmed Central Finance Company PLC’s (CF) National Long-Term Rating of ‘A-(lka)’, and removed the rating from Rating Watch Negative. The Outlook is Stable.

CF’s National Long-Term Rating reflects its franchise as one of the largest domestic finance and leasing companies (FLCs) in Sri Lanka with an established operating history, which helps support its overall business profile. The rating also reflects CF’s above-industry capitalisation, with

better asset-quality and earnings performance despite recent economic pressures, which underpins its position as one of the highest-rated standalone FLCs in Fitch’s Sri Lankan coverage.

Reduced economic risk will temper the pressure on the sector’s operating performance and liquidity profile, although the pace of recovery may vary with individual entities’ business mix and franchise strengths. Fitch expects sector growth to remain weak with lingering asset-quality pressure in the financial year ending March 2024 (FY24), but this may improve in FY25 as the economy recovers. Declining interest rates should ease funding cost pressure but could hit asset yields for lenders with shorter asset-repricing cycles.

CF is the fourth-largest FLC in Sri Lanka with 4%-5% share of sector deposits and gross loans in June 2023. Fitch expects CF to remain focused on vehicle financing, which comprised 88% of net loans at FYE23, by targeting retail customers through loans and leasing facilities for registered, second-hand vehicles. Its market share fell given its more conservative growth appetite amid the economic challenges relative to the average of other Fitch-rated FLCs, but we expect the company to expand and retain its franchise strength once the economy recovers.

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