Fitch Ratings Lanka has affirmed Ideal Finance Limited’s National Long-Term Rating at ‘B+(lka)’ with a stable outlook.
Ideal’s National Long-Term rating reflects its high-risk appetite, with significant exposure to the more-vulnerable segments of the finance and leasing market and aggressive growth. The rating also captures the company’s still-developing franchise, which is reflected in its small market share and limited operating history.
Fitch expects Ideal’s asset quality to remain under pressure due to its unseasoned loan book following sustained rapid loan expansion amid a weak operating environment. Its reported non-performing loan ratio (greater than 180 days overdue) increased to 2.7% in the financial year ended March 2019 (FY19) (FY18: 1.6%). Fitch sees Ideal’s exposure to non-core real-estate investments (6% of equity at FYE19) as a risk due to its cyclical nature.
Fitch expects Ideal to raise capital to meet the regulatory minimum core capital requirement for licensed finance companies as its internal capital generation is unlikely to be sufficient.