Fitch Rates Sri Lanka's People's Leasing 'B+'; Outlook Stable
Fitch Ratings-Mumbai/Colombo-18 July 2012: Fitch Ratings has assigned Sri Lanka's People's Leasing Company Plc (PLC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'B+' with a Stable Outlook. A list of PLC's outstanding ratings (including the above) is provided at the end of this commentary.
PLC's IDRs reflect the capacity and willingness of its state-owned and systemically important parent - People's Bank (PB, 'AA+(lka)'/Stable, a 75% stake) - to extend extraordinary support to the PLC group in an extreme situation. This in turn is driven by PLC's strong association with the PB brand and its strategic importance to PB.
PB has majority representation on PLC's board, including a common Chairman and the bank's CEO who serves on an ex-officio basis. In addition to 51 of its own branches, PLC operates 134 window offices within PB's branch network of 341. PLC also continues to make a sizeable contribution to PB's consolidated post-tax profits (2011: 27%), and is the third-largest lending segment within PB (2011: 14% 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 ('A(lka)'/Stable), amounted to over LKR23bn (24% of PLC group assets).
PB's capacity to support PLC in turn is derived from the financial capacity and propensity of the government of Sri Lanka ('BB-'/Stable), given the bank's increasing role in Sri Lanka's post-war economic development and its high systemic importance (18% of system assets and deposits in 2011). Fitch believes that it is highly likely for government support to flow to PLC via PB. This is due to the strong linkages between the two entities and the strategic importance of PLC to PB, as well as the consequent reputation risk to the State if PLC should default on its financial obligations.
PLC's IDRs may be downgraded if PB gives up its controlling stake in PLC, or if PB's (derived) capacity to support weakens, or if PLC's strategic importance to PB diminishes over time.
PLC is the largest non-bank financial institution in Sri Lanka in terms of advances, with a 21% share of the market at end-2011. At end-March 2012, its total assets and post-tax profits stood at LKR96bn and LKR4.5bn, respectively.