Leasing Rating

May 24, 2008 (LBO) – Fitch Sri Lanka has confirmed a 'BBB-(lka)' rating of Ceylease Financial Services (CFSL), a unit of state-run Bank of Ceylon, with a 'stable' outlook but said interest costs and bad loans were rising. Fitch says the comparatively high net NPL to equity ratios are partly due to the company's relatively low capital base compared to the industry, as indicated by an equity to assets ratio of 10.9 percent at the end of the 2007 financial year.

Consequently CFSL's credit concentrations were high at the end of 2007, with the 10 largest customer exposures accounting for 117 percent of capital.

Fitch says further expansion of lending is checked by regulatory limits on specialized leasing firms at 10 times the capital funds, which will be reduced to 7 times by 2009.

CFSL's gearing level stood at 7.8 times its capital base at the end of 2007.

"Furthermore, Fitch observes that CFSL's internal capital generation has been constrained due to 4 year cumulative payout of net income of 41.7 percent which is higher than the sector," the rating agency said.

CFSL started in 1996 and is owned by Bank of Ceylon, Phoenix Ventures (40 percent) and an Employee Share Option Scheme (10 percent).