Lanka Rating assigns BBB2/L2 to Alliance Finance

RATING: LRA has assigned a long-term financial institution rating of BBB2, with a stable outlook and a short-term rating of L2 to Alliance Finance Co Ltd.

The ratings are based on the Company's healthy asset quality, improving performance and comfortable capitalisation level, moderated by its trading activities.

AFC is the third-oldest finance company in Sri Lanka, and is one of the five finance companies listed on the Colombo Stock Exchange.

In addition to providing traditional financing products, the Company also participates in collaboration financing, share trading, as well as the import and trading of selected consumer goods.

The Company has maintained a healthy growth in its gross loans and advances, albeit marginally below the industry average. However, the robust growth of its loan portfolio has out-paced that of its deposit base.

As a result, AFC has turned to bank loans to finance its expanding lending activities, which has deteriorated its loan-to-deposit ratio, from 80.64% as at the end of March 31, 2005 to 107.54% as at end-September 2005.

Although secured bank borrowings offer better maturity structures, continued utilisation of the same may subordinate depositors, thus posing a concern. Under the circumstances, LRA will continue to closely monitor the company's borrowings.