RAM Ratings has reaffirmed Bartleet Finance Limited’s (“BFL” or “the Company”) long and short-term financial institution ratings at BBB- and P3, respectively; the long-term rating has a stable outlook. The reaffirmed ratings are premised on the Company’s moderate financial performance, funding and capital adequacy levels. RAM Ratings has also taken into consideration BFL’s improving asset quality.

BFL is a small player that accounted for only 1.84% of the registered finance companies’ (“RFC”) industry asset base as at FYE 31 March 2007 (“FY Mar 2007”). Even though the Company has 6 branches outside Colombo, the deteriorating macro-economic environment and competition from banks have impinged on its loan growth.

Despite the deceleration in the growth momentum of its loan base, BFL’s asset quality has improved, albeit with the possibility of weakening in the future. The Company has banked on the booming hire-purchase (“HP”) segment in Sri Lanka, which accounts for almost 80% of its lending portfolio. As BFL commenced HP vehicle financing only in 2005, this segment is relatively new. As such, RAM Ratings considers this category of assets to be unseasoned, as evident from the marginal increase in delinquencies.

On the whole, however, BFL’s collection and monitoring have improved considerably. Furthermore, hefty write-offs in the previous 2 years have helped the Company lower its double-digit gross non-performing-loan (“NPL”) ratio to 4.44% as at end-FY Mar 2007 (industry: 4.46%).

The Company’s decelerating asset growth and better collections, have meanwhile, reduced its bank borrowings. Nonetheless, the rising interest rate environment has shifted BFL’s deposit mix towards the shorter end, thus broadening the negative funding gaps in the “less than 1 year” bracket. Against this backdrop, the continued absence of a formal asset-liability management process can become a concern. At the same time, the Company’s profit performance was dampened by larger than average overheads and loan-loss provisions. BFL closed its books for the FY Mar 2007 with a pre-tax profit of LKR 64.46 million (FY Mar 2006: LKR 103.68 million). Looking ahead, RAM Ratings expects the Company’s financials to weaken further owing to its contracting margins.

Elsewhere, BFL’s Tier I and overall capital-adequacy ratios have improved due to the slower growth of its loan base. Nonetheless, the Company’s weakening financials and anticipated higher dividend payouts as a result of deemed dividend tax is likely to keep its capital-adequacy ratios at moderate levels.

RAM Ratings is a domestic credit rating agency and is a 100%-owned subsidiary of Malaysia’s premier rating agency RAM Holdings Berhad which is an affiliate of Standard & Poor’s, the world’s largest rating agency.