Tough Times

Mar 06, 2008 (LBO) – Fitch Sri Lanka has downgraded the national long term rating of Sinhaputhra to ‘BB- (lka)’ from ‘BB (lka)’ with a negative outlook, as defaults increased amid tough economic conditions. “The downgrade reflects the significantly weakened asset quality and solvency at the regulatory six-month level,” Fitch Ratings said in a statement.

“The rating also factors in the company’s somewhat low capital position and the substantial deterioration in profitability in the six-month period ending September 2007.

“The Negative Outlook is indicative of the need for SFL to reverse the trend of weakening collections and declining profitability.”

Although loan growth was 28 percent in the year to March 2007, which was marginally above the sector growth rate of 26 percent, the portfolio was stagnant in the six-month period to September 2007 as the firm was focusing on recoveries.

Fitch says a new information system which would be fully implemented by mid-2008, could help the process.

About half the loan portfolio consisted of leases second-hand commercial vehicles, and a significant proportion was also secured by property mortgages.

The majority of the remainder of the po