MIF says no change in its Fitch rating over the years

With regard to the Sunday Times September 20 article titled ‘CIFL crisis exposes weaknesses in Central Bank’s regulatory systems’, Mercantile Investments and Finance PLC (MIF), which was mentioned in the article, points out that it had no connection with the subject matter of the article.

Of the finance companies regulated by the Central Bank of Sri Lanka, 18 are rated BBB- or below (as per the Financial System Stability Review 2019), MIF says. It maintains that the company is run by a competent and professional management team, and has assets far in excess of its liabilities as well as an unblemished reputation for making payment on its deposits as and when they fall due.

The Company has a strong capital base with prudential capital adequacy ratios higher than most of the top rated NBFI peers. MIF's core capital ratio stood at 13.56% and total risk weighted capital ratio at 15.25% by 31st March 2020 well above the regulatory ratios of 6.5% and 10.5% respectively.

While the article states that Fitch Rating (Lanka) “gave” MIF a BBB- and “deemed” its outlook “negative”, the Fitch report dated September 11, 2020, is that “Fitch affirms Mercantile Investments and Finance PLC at BBB(lka); Outlook Negative”, MIF points out.

MIF was not downgraded in September 2020 but it was a mere reaffirmation of its rating from last year and the year before that. This reaffirmation, for consecutive years confirms, by Fitch itself, the stability, consistency and dependability of the business, MIF states.

While the article also said “Capital buffers to deteriorate”, the Fitch report stated that it “could deteriorate,” MIF continues, adding that the inclusion of its name in an article which talks about collapsed companies that have either been unregistered or non-compliant with CBSL regulations is highly damaging, to say the least, to its reputation, commercial standing and credibility.

Separately Fitch Ratings also issued a clarification: Fitch Ratings would like to clarify that the press release that the Sunday Times referred to in the article 'CIFL crisis exposes weakness in Central Bank's regulatory system' is an affirmation of our longstanding rating of the firm, and represents no change in rating or outlook. Fitch Ratings gave Mercantile Investments and Finance the BBB-(lka) rating in November 2015 as its maiden rating and has affirmed this same rating at every review since, leaving the rating unchanged for nearly five years. Similarly, the outlook has been negative since July 2019 and has remained such with every review since.

Reporter’s note: The inclusion of MIF in the article was only in the context of Fitch releasing its report on September 11. There was no deliberate targeting of the company.