May 23 (LBO) – Lanka Ratings gave Alliance Finance Company a stable long-term BBB2 (triple B two) rating on Tuesday, for its healthy asset quality and performance. â€œDue to its prudent policies, AFCâ€™s asset quality is expected to remain healthy in the immediate term.â€
Pre-tax profits have been showing a steady increase over the past five years, from 12.68 million rupees in the financial year March 2002 to 60.28 million rupees in the financial year ending March 2005.
As at end March 2006, the companyâ€™s risk-weighted capital adequacy ratio stood at 10.08 percent, slightly lower than the 10.40 percent at end-March 2005, but above the statutory minimum of 10 percent.
â€œGiven the Companyâ€™s short-term plans and healthy internal capital generation, we believe it to be adequately capitalised for the immediate term.â€
Lanka Ratings is a domestic credit rating agency, and is a wholly owned subsidiary of Rating Agency Malaysia Berhad (â€œRAMâ€) – an affiliate of global ratings giant, Standard & Poorâ€™s.
The long term rating denotes financial institutions that offer a moderate degree of safety for timely payments of financial obligations.
This level of rating indicates entities which have been significantly under-performing in some areas, however, are considered to have the capability to overcome such problems in the short term, the rating agency said in a statement on Tuesday.
Alliance Finance provides traditional financing products, as well as participating in collaboration financing, share trading, as well as the import and trading of selected consumer goods.
The Ratings Agency said it is keeping a close watch on the companyâ€™s borrowings, following a deteriorating loan to deposit ratio from 80.64 percent as at end March 2005 to 107.54% as at end-September 2005.
The company has maintained a healthy growth in gross loans over the past few years, though below industry average.
â€œHowever, the robust growth of its loan portfolio has out-paced that of its deposit base. As a result, AFC has turned to bank loans to finance its expanding lending activities, which has deteriorated its loan-to-deposit ratio.â€
â€œAlthough secured bank borrowings offer better maturity structures, continued utilisation of the same may subordinate depositors, thus posing a concern.â€
The companyâ€™s gross non-performing loan ratio has reduced from 21.50 percent as at end March 2002 to 5.91 percent as at end- March 2006, following improved collections, prudent provisioning and aggressive write-offs.