OREANDA-NEWS. Fitch Ratings has affirmed International Personal Finance Plc's (IPF) Long-term Issuer Default Rating (IDR) at 'BB+', Short-term IDR at 'B' and senior unsecured debt at 'BB+'. The Outlook on the IDR is Stable.

The affirmation follows the recent announcement of an amendment to draft legislation in Poland, IPF's largest single market, which would place a cap on all non-interest loan costs. The previous expectation had been that only mandatory non-interest costs would be capped. In Fitch's opinion, the amendment demonstrates the inherent susceptibility of IPF's business to shifts in legislation and regulatory opinion within its key countries of operation. At the same time, Fitch recognises management's track record in responding to changes as they have arisen, and adjusting its model to suit diverse markets.

KEY RATING DRIVERS
IDRS AND SENIOR DEBT
IPF has operated its home-collected lending business successfully over the economic cycle, supported by its strong capitalisation and modest leverage. So far, these factors have afforded the group a degree of buffer against the high credit, regulatory and operational risks of conducting unsecured lending in emerging market countries, in some of which it as yet has only modest business scale. Significant arrears are a feature of IPF's business model, but in Fitch's opinion are adequately provided for.

If the draft legislation is passed in its current form, Fitch anticipates that previous headroom at the 'BB+' rating will largely be eroded, in particular reflecting heightened business risk but also some weakening of the near-term financial profile. The Stable Outlook assumes that management will nevertheless be able to mitigate at least part of the negative impact of the proposed legislation.

RATING SENSITIVITIES
IDRS AND SENIOR DEBT
The high-cost credit business and associated issues of consumer protection remain subject to heightened regulatory scrutiny and political focus in many countries. Should the final version of the anticipated Polish law contain further more stringent provisions than those already proposed, or similarly restrictive legislation follow in other countries in which IPF operates, it could result in a downgrade.

Management is developing an alternative product structure to mitigate any adverse financial impact of the new Polish law to the greatest extent possible. However, if this proves more difficult than anticipated to implement, or if its execution is accompanied by a deterioration in impairment that suggests that the revised structure has materially increased the risk profile of the business model, this could also place pressure on the ratings.

Upside potential to the IDRs remains limited in the short to medium term, in view of the limited diversification of IPF's funding, as well as the need to demonstrate successful adaptation to the pending regulatory change in Poland. However, the rating could benefit from successful geographical diversification, depending on market dynamics.

The senior debt rating is driven by IPF's Long-term IDR and is sensitive to any change in it.