Fitch Affirms Bimputh Finance at 'BB(lka)'; Outlook Stable
KEY RATING DRIVERS
Bimputh's rating reflects its relatively small-but-evolving franchise and high risk appetite stemming from its predominant microfinancing exposure. The rating also reflects pressure on the company's capitalisation stemming from its above-average loan growth and limited funding diversity due to heavy wholesale-funding reliance.
Bimputh's microfinancing exposure remained high at 77% at end-June 2016, which Fitch sees as risky due to the segment's susceptibility to economic cycles. The company manages this exposure through product structuring, regular collections of dues and close interaction with borrowers. Exposure to non-microfinancing loans has increased following expansion of corporate and personal loans.
The company's reported six-month NPL ratio had increased slightly to 1.0% by end-June 2016, from 0.8% at end-March 2016. Fitch calculates this ratio at a higher 2.5% if the facility to Sevanagala Sugar Industries Limited (SSIL; an entity within the Daya Group that was expropriated by the government in November 2011) is considered as a NPL. However, the ratio, even when including SSIL, is in line with similarly rated peers.
Bimputh's Fitch Core Capital had declined to 18.2% by end-June 2016, from 21.8% at end-March 2015, and its Tier I regulatory capital ratio had also declined to 16.1%, from 21.6% at end-March 2015. The decline in the ratio was due to rapid loan growth. High yields on microfinancing have supported the company's high profitability, with a return on assets of 7.8% at end-June 2016. Fitch believes continued high capital consumption could lead to further deterioration in capital ratios if internal capital generation proves insufficient or if there are no capital injections.
The company's deposit franchise remains weaker than that of its peers, and its deposit base is highly concentrated. The contribution from deposits to Bimputh's funding mix remained at 30% at end-June 2016, and Fitch believes the company is likely to rely on more borrowings to finance its loan-book growth in the medium term. However, Bimputh has access to unutilised funding lines from local financial institutions, and has sourced medium-term funding from foreign financial institutions.
An improvement in Bimputh's franchise, while sustaining credit metrics similar to higher-rated peers, and a moderating risk appetite could be positive for its rating.
Aggressive loan growth that increases capital-impairment risks, either through greater unprovided NPLs or a continued deterioration in capitalisation, could lead to a downgrade of Bimputh's rating.