CB urges finance, leasing firms to nurture, harness economic boom

By Shabiya Ali Ahlam

With infrastructure facilities incessantly being improved along with tapped potentials in the agriculture, fisheries, ICT, apparel and tourism sectors unfolding, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal stressed on the need for Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) to make efforts to further improve and facilitate private sector investment. These views were aired at the Directors’ Symposium for Non-Bank Financial Institutions.

Non Banking Financial Institutions (NBFIs) account for 6% of the financial system and feature 46 LFC and 13 SLCs, total assets of Rs. 564 billion, total lending of Rs. 451 billion, total deposits of Rs. 233 billion, and a network of 833 branches.

They provide financial services to segments unable to meet the requirements of the banking sector, while contributing to overall financial system stability. “So far NBFIs have been reasonably resilient and vibrant and the sector has been experiencing fast track growth,” noted the Governor. While few companies have had negative asset growth in the past two years, 19 companies have grown their assets by more than 100%.

With the emerging economy is reshaping and redefining the Sri Lankan financial landscape, it is imperative to look at what is reshaping the NBFI sector? Cabraal answered this by shedding light on the fact that the Sri Lankan economy is envisaged to move to the next growth phase of $ 4,000 per capita income.

The rising income levels have resulted in society moving to the next level of standard of living. Competition is expected to intensify significantly in the NBFI sector with the advancement of IT, namely mobile banking. Completing the circle, the Government has introduced new regulatory reforms changing cost structures and risk management.

Thus in this backdrop, the NBFI sector needs to position itself for the $ 4,000 era and to achieve this, NBFIs are expected to strategically focus on pertinent factors.

The Governor advised the NBFI sector to access foreign funds and internationalise by tapping into international sources of funds with significant foreign exchange inflows for various projects and improve rating standards. 

With the current trends, it is foreseen that traditional leasing business will no longer be the key business, therefore NBFIs are expected to change entrenched practices by executing deeply rooted business models, concentrating mainly on collateralised lending based on movable assets by offering ‘vanilla’ products such as finance leasing, hire purchase and pawning, and by catering to specific segments of the population.

“Vibrant human capital to drive the NBFI sector forward is important,” added the Governor. Lack of professional, competent and dynamic human resources has given rise to lack of accountability and non transparent corporate governance. “The need for dynamic and resourceful human capital in the non-banking sector is the need of the moment.”

833 NBFI branches are spread across the country – this was noted as imperative in order for the sector to focus on inclusive growth for widespread economic growth. By employing diversified business models, the Central Bank expects the sector to introduce diversified products and create business models in the line of ‘one-stop financial services,’ while also focusing on small and medium enterprises and sectors such as construction, tourism, manufacturing, services and agriculture, which are recognised as economic drivers.

Integrating risk management to be the core of NBFIs is necessary and the sector needs to adopt an integrated risk management process to monitor and manage all risk elements. The responsibility of understanding risks and managing such aspects appropriately are vested with the board of directors.

Despite the fact that NBFIs will not be able to elevate themselves to the banking status in the near future, the institutions should nevertheless match the professionalism, good corporate governance practice and world class operations of a bank, recommended the governor. “Be a NBFI, but think and operate like a bank to serve the nation.”  

Pix by Sameera Wijasinghe