Fitch Ratings has affirmed
The Outlook is Stable.
Key Rating Drivers
Standalone Profile Drives Rating: CF's National Long-Term Rating reflects its franchise as one of the largest domestic finance and leasing companies (FLCs) in
Less Severe Economic Risk: The removal of the RWN reflects our view that downside to the rating is less imminent following the completion of the local-currency portion of the sovereign's domestic debt optimisation (DDO), which addresses one element of risk to sector funding and liquidity. The operating environment will remain weak in light of strained household finances and fragile investor confidence, but should stabilise on the gradual economic recovery with easing inflation and interest rates.
Reduced economic risk will temper the pressure on the sector's operating performance and liquidity profile, although the pace of recovery may vary with individual entities' business mix and franchise strengths. Fitch expects sector growth to remain weak with lingering asset-quality pressure in the financial year ending
Established Vehicle Financier: CF is the fourth-largest FLC in
Cautious Lending Appetite: CF has retained a cautious lending approach amid several economic shocks that weighed on vehicle financing demand, asset quality and sector funding and liquidity in recent years. Its loans contracted by an average of 13% a year over FY19-FY23, compared with the industry CAGR of 1%. The company has also generally avoided riskier or less-familiar products.
Easing Asset-Quality Pressures: Enhanced recovery efforts led to CF's 90-day past due ratio falling to be one of the lowest relative to the sector average of 20.4% at
Sustained Profitability Despite Risks: We expect the company to maintain adequate profitability in the near term. CF's pre-tax profit/average assets rose to 11.1% in FY23 (FY19-FY22: 6.4%-9.7%), despite weak loan volumes, mainly due to wider interest yields on the company's enlarged government securities portfolio. This is unlikely to be sustained in the medium term, but we believe adequate lending yields should cushion against operating and credit impairment costs in the next one to two years.
Persistent Low Leverage: We expect CF to maintain its better-than-peer capitalisation, although leverage may rise once the company's loan growth picks up. Its leverage, as measured by debt/tangible equity, was 0.6x at end-1QFY24, meaningfully lower than Fitch-rated peers' average of 3.1x.
Abating Funding and Liquidity Risks: CF's decision to downsize its loan book and shift its assets to treasury bills supports its liquidity profile in the challenging economic environment and its liquidity position remains well above the regulatory thresholds. CF also has a high level of unsecured debt with good financial flexibility as deposits made up 99% of its total funding.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The National-Long Term Rating is sensitive to changes in CF's standalone credit profile relative to Fitch-rated issuers on
Fitch may also take negative rating action if there is renewed weakness in market variables or funding and liquidity conditions, leading to increased risk to the company's asset exposures, profitability and balance-sheet buffers. If extreme, such stresses could result in a multiple-notch downgrade.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An improved operating environment, together with sustained outperformance in the company's asset quality relative to peers on
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
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