"The rating also factors in CLC's relative size compared to larger peers and banks, as well as the funding limitations inherent in the business model of specialised leasing companies," Fitch said in a statement.
"The revision of the Outlook reflects Fitch's concern over the deterioration in CLC's asset quality and its implications on solvency."
Leasing and finance companies play in Sri Lanka's sub-prime category taking on riskier clients than the banking sector.
Fitch said Commercial Leasing asset quality started to fall in the latter part of the 2006 financial years and in the first half of 2007 to a greater degree than others.
The ratio of gross non-performing loans (NPLs) in arrears for over three months had deteriorated to 12.6 percent at end of the first quarter of 2007 compared to 11.5 percent at the end of 2006 and from 5.4 percent at