Fitch Ratings downgrades Sri Lankan financial institution as economic woes worsen
Fitch Ratings downgraded the long-term national rating of Bimputh Finance PLC to “CC (lka)” from “B- (lka)”, denoting a high risk of default. The rating was also removed from the Rating Watch Negative (RWN) list.
“The downgrade reflects Flitch’s view that Bimputh’s liquidity and refinancing risk has increased significantly due to a persistent decline in asset quality,” the rating agency said.
Bimputh Finance PLC, established in 2007, is registered as a non-bank financial institution by the Central Bank of Sri Lanka, which aims to improve the standard of living of the rural people of Sri Lanka through the provision of financial loans. Bimputh’s financial situation continued to “deteriorate significantly” after Fitch downgraded the rating in June 2021.
Fitch believes that “Bimputh’s access to financing is hampered and the risk of default has increased, given the deterioration in the credit profile and the failure to meet regulatory funding requirements.” This comes after the Central Bank of Sri Lanka (CBSL) imposed a deposit limit of LKR 1.5 billion on Bimputh for “failure to meet the provisional minimum capital requirement”. Fitch added that “Bimputh’s financial flexibility is considered limited due to its heavy reliance on secured bank loans and the low quality of its loan portfolio as potential collateral.”
“This growing mismatch between assets and liabilities also exposes Bimputh to increased risk of debt repayment and refinancing,” he added. “Bimputh’s monthly cash inflows have declined sharply, in part due to movement restrictions imposed by authorities to curb the spread of Covid-19, eroding its already thin liquidity cushions. “
Fitch estimates that Bimputh’s capital deficit would increase to around LKR 2.4 billion, from LKR 2.0 billion at the extended deadline of December 31, 2021 due to continued operating losses. “We believe that Bimputh will find it extremely difficult to address this capital shortfall given the prevailing tensions in the operating environment and its low credit profile,” he concluded.
Fitch notes that Bimputh’s rating could be lowered further if the company does not adequately meet its short-term debt service requirements.
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