Fitch downgrades People’s Leasing & Finance to A+(lka)


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ECONOMYNEXT- Ratings agency Fitch downgraded state-owned People’s Leasing & Finance Plc (PLC) to a national long-term rating of A+(lka) from AA-(lka) while affirming the issue default rating at B- with a stable outlook, after assessing it as a standalone firm.

Fitch had earlier rated PLC based on an expectation of extraordinary support from its parent, Sri Lanka’s second largest lender People’s Bank.

“We assess PLC’s standalone profile to be incrementally weaker on the national scale, driving the downgrade of its National Long-Term Rating,” Fitch said.

“We believe People’s Bank’s ability to provide extraordinary support has weakened, even though we assess People’s Bank’s propensity to support PLC as unchanged.”

“PLC’s standalone profile takes into account its strong domestic franchise among domestic non-bank financial institutions, underpinned by its linkage to PB and its market share (around 12 percent of non-bank financial institution-sector assets at end-9M19), as well as its high-risk appetite stemming from exposures that are more susceptible to operating conditions.”

The rating cut on PLC follows Fitch cutting the outlook on People’s Bank.

Fitch said PLC’s standalone strength is now higher than if based on expectation of support from People’s Bank.

The ratings agency said weakening links between PLC and its parent is negative to support assumptions.

Rating upside is limited due to the negative outlook on both the parent and the sovereign, Fitch said.

A weakening credit profile could lead to further downgrades, the ratings agency said.

The full Fitch review follows:

Fitch has downgraded People’s Leasing & Finance PLC’s (PLC) National Long-Term Rating to ‘A+(lka)’ from ‘AA-(lka)’ and affirmed the IDR at ‘B-‘ with a Stable Outlook.

The revision of the Outlooks follows Fitch’s Outlook revision on the Sri Lankan sovereign (B/Negative); see Fitch Revises Outlook on Sri Lanka to Negative; Affirms at ‘B’, dated 18 December 2019.

Fitch has revised its assessment of Sri Lanka’s operating environment to ‘b’/negative, from ‘b’/stable, primarily to reflect the risk of doing business in the jurisdiction, which we believe could heighten in the medium term.

Increased macroeconomic volatility could pressure the banks’ and non-bank financial institutions’ credit profiles should the sovereign’s credit profile deteriorate further.

The operating environment has a high influence on the banks’ ratings, as it is likely to constrain their intrinsic credit profiles through its effect on financial and non-financial key rating factors.

PLC’s IDRs and National Long-Term Rating reflect its intrinsic credit profile, as we believe the rating based on its standalone strength is now higher than if based on the expectation of extraordinary support from its parent, PB. This follows the rating action on PB.

We believe PB’s ability to provide extraordinary support has weakened, even though we assess PB’s propensity to support PLC as unchanged.

PLC’s standalone profile takes into account its strong domestic franchise among domestic non-bank financial institutions, underpinned by its linkage to PB and its market share (around 12% of non-bank financial institution-sector assets at end-9M19), as well as its high-risk appetite stemming from exposures that are more susceptible to operating conditions.

PLC’s ‘b-‘ standalone profile and IDR are already low on the international rating scale and adequately reflect the downside risk to its operating environment and credit profile from any further weakening in the sovereign’s credit fundamentals.

However, we assess PLC’s standalone profile to be incrementally weaker on the National scale, driving the downgrade of its National Long-Term Rating.

PLC’s Sri Lanka rupee-denominated senior unsecured debt is rated at the same level as its National Long-Term Rating, as the debentures rank equally with other senior unsecured obligations.

Rating upside for PLC is limited given the challenging operating environment and the Negative Outlook on PB and the Sovereign.

A weakening in strategic linkages between PLC and its parent would also be negative for our support assumptions.

Upside for PLC’s National Long-Term Rating is most sensitive to positive rating action on the sovereign, as this could strengthen PB’s ability to provide support to PLC to a level above our assessment of PLC’s standalone profile.

This would include a revision of our Outlook on the sovereign rating to Stable from Negative.

With regards to downgrade triggers, PLC’s National long-term rating is likely to be more sensitive to any weakening in its credit profile, compared with its already-low IDRs on the international scale.

Deterioration in PLC’s standalone profile would most likely be due to a weakening in its operating environment and related risks or an increase in its risk appetite that weakens its asset quality and capital buffers.

The senior debt ratings will move in tandem with the National Long-Term Rating.

Long-Term Foreign-Currency IDR affirmed at ‘B-‘; Stable Outlook

Long-Term Local-Currency IDR affirmed at ‘B-‘; Stable Outlook

National Long-Term Rating downgraded to ‘A+(lka)’ from ‘AA-(lka)’; Stable Outlook

Sri Lanka rupee-denominated senior unsecured debentures downgraded to ‘A+(lka)’ from ‘AA-(lka)’

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