Fitch Ratings have downgraded Bimputh Finance PLC's National Long Term Rating to 'CC(lka)' from 'B-(lka)', denoting a high risk of default. The rating has also been removed from the Rating Watch Negative (RWN) list.
"The downgrade reflects Flitch's view that Bimputh's liquidity and refinancing risk has risen significantly driven by a persistent decline in assets quality," said the ratings agency.
Bimputh Finance PLC established in 2007 is registered as a non-banking financial institution by the Central Bank of Sri Lanka, which aims to enhance the living standards of Sri Lanka's rural population through the provision of financial loans. Bimpuths financial position continued to "deteriorate significantly" after Fitch downgraded the rating in June 2021.
Fitch believes that Bimputh's "funding access is impaired and the risk of default has increased, given the worsening credit profile and non-compliance with regulatory capitalisation requirements". It comes after the Central Bank of Sri Lanka (CBSL) imposed on Bimputh a deposit cap of LKR1.5 billion for "failing to comply with the interim minimum capital requirement". Fitch added that "Bimputh's financial flexibility is considered limited due to its heavy reliance on secured bank borrowings and the weak quality of its loan book as potential collateral".
"This widening asset-liability mismatches also expose Bimputh to heightened debt repayment and refinancing risk," it added. "Bimputh's monthly cash collections have declined sharply, partly due to the movement restrictions imposed by the authorities to curb the spread of Covid-19, eroding its already thin liquidity buffers."
Fitch estimates that Bimputh's capital shortfall would increase to around LKR2.4 billion from LKR 2.0 billion by the extended deadline of 31 December 2021 due to continued operating losses. "We believe Bimputh will find it extremely challenging to address this capital shortfall given the prevailing stress in the operating environment and its weak credit profile," it concluded.
Fitch notes that Bimputh's rating could be downgraded further if the company fails to adequately address its near-term debt-servicing requirements.
Read more at FitchRatings.