Fitch Ratings has assigned LB Finance PLC a national long-term rating at ‘A-(lka)’ with a stable outlook. According to Fitch the rating reflects its established franchise among licensed finance companies, and sustained sound profitability.
“The rating upholds significant efforts and processes put into improve the GRC-(Governance, Risk & Compliance) aspects across the organization. Company has made significant strides in the recent past to improve its risk management capabilities and strengthen independent oversight role of risk management across credit, market, liquidity and operational risk areas” LB Finance Executive Director Niroshan Udage said.
The rating reflects Fitch’s expectation that LB’s profitability remains sufficient to allow for growth, while maintaining capital ratios at the current level.
Company’s cost to income ratio remained the lowest among the peers at 36 percent at end 1H16 on the back of greater scales. The regulatory Tier 1 ratio stood at 16 percent at end FY15.
The rating agency observes that the company’s business focus remains on vehicle financing (75 percent of the loan book at end 1H16) with motor cars and three wheelers accounting for 26 percent and 24 percent of the total at end 1H16.
About 60 percent of its motor car and three wheeler loans comprise unregistered vehicles, which is a positive as they are newly imported and are of a better credit quality.
An upgrade of the company’s rating, Fitch asserts, is contingent upon achieving stronger capitalization levels along with a moderation of its risk appetite. A more comfortable liquidity position would also support the rating.