ICRA Lanka upgrades Asia Asset Finance ratings

Asia Asset Finance PLC (AAF) has gained stable outlook with resilience overcoming growth headwinds in Covid-19 environment, leading Credit Rating Agency ICRA Lanka Limited affirmed.

It has revised the outlook of Asia Asset Finance PLC to BBB+[Stable] from BBB+(Negative) considering growth performance  with capital, operational, financial and managerial support from  its parent company Muthoot Finance Limited (MFL).

The outlook revision to “Stable” from “Negative” reflects the improvement of the parent entity’s rating and the additional support extended by the parent, as well as  the increase in exposure to asset backed lending, including Gold Loans.

Further, ICRA Lanka noted that the capital adequacy ratios of AAF  remain an adequate buffer over the minimum capital requirement (set by the CBSL) continues modest. The Company is required to have a minimum core capital requirement of Rs 2.5 Billion by January 2022, which is likely to be met through internal generation and capital infusion by the parent company, ICRA Lanka noted. 

Having a solid asset base in the company and the continuous support  of MFL in regaining  glitter in  the Gold Loan business  has become more resilient in  the competition, thus expanding its Gold Loan base to Rs 6.5 Billion, the Chief Executive Officer of Asia Asset Finance, Rajiv Gunawardena said. Further he revealed that the company recorded a tangible net worth of Rs 1,991 Million and reported a net worth of Rs 2,189 Million respectively as of December 2020, which was close to a minimum regulatory core capital requirement of Rs 2000 Million by January 2021.

The parent entity aims to provide a capital infusion of Rs 500 Million in Q1 of FY2022 followed by another capital infusion of Rs 300 Million within the next year.

The ratings take into account MFL’s consent to provide capital support in the future as well to meet the growth and regulatory requirement, the agency said.

Going forward, with the expected expansion in the Gold Loan portfolio, AAF expects to further reduce the dependency on public funds and improve the long-term funding sources such as Debentures, Term Loans from Banks and Securitized Borrowings.

ICRA Lanka  revealed that  AAF  has a fairly diversified funding profile comprising of retail Fixed Deposits, Debentures, Term Loans from Banks and Securitized Borrowings.

The funds from Fixed Deposits have moderated over the years with 50% of the funding base consisting of Fixed Deposits as in December 2020 in comparison to 52% in March 2020 and 57% in March 2019.