NBFIs getting nimbler

• CBSL announces approval for acquisitions and/or amalgamation by 6 finance companies 
• 9 firms have infused fresh capital of over Rs. 12 b

The country’s Non-Bank Financial Institutions (NBFIs) sector is getting nimbler following fresh capital infusion by several firms, as well as acquisition or amalgamation by others needing fresh funds and stability. 

The positive development is following the fast tracking of Central Bank’s ‘Masterplan for Consolidation of Non-Bank Financial Institutions’.

CBSL said yesterday that under the masterplan, nine finance companies had already introduced fresh capital of Rs. 12.56 billion to meet regulatory capital requirements.

They are Sarvodaya Development Finance PLC, Dialog Finance PLC, Asia Asset Finance PLC, Lanka Credit and Business Finance PLC, People’s Merchant Finance PLC, Softlogic Finance PLC, Merchant Bank of Sri Lanka & Finance PLC, UB Finance Co. Ltd. and Richard Pieris Finance Ltd.

In addition, 12 companies have submitted their acquisition/consolidation plans to CBSL and obtained relevant preliminary approvals.

They are as follows:

1. Assetline Leasing Co. Ltd. – acquisition of finance business licence of Kanrich Finance Ltd. and settlement of its deposits.

2. LB Finance PLC - acquisition and subsequent amalgamation of Multi Finance PLC.

3. SMB Leasing PLC - acquisition of finance business licence of Swarnamahal Financial Services PLC and settlement of its deposits.

4. Commercial Leasing & Finance PLC - acquisition and subsequent amalgamation of Sinhaputhra Finance PLC.

5. HNB Finance PLC - acquisition and subsequent amalgamation of Prime Finance PLC.

6. LOLC Finance PLC- amalgamation of Commercial Leasing & Finance PLC.

“As a result of the above developments, the Non-Bank Financial Institutions sector has witnessed a significant improvement in compliance with regulatory capital requirements and has recorded the lowest non-compliance levels during recent times,” CBSL said.

Fitch Ratings in a report in September last year said weaker growth prospects coupled with the economic and financial fallout from the  pandemic had reduced Sri Lankan Finance and Leasing Companies (FLCs’) credit profiles. 

The industry’s total loans fell by 2.2% in the year to June 2021 (1QFY22), marking the fifth consecutive quarter of loan contraction for the industry.

The sector non-performing loans ratio, based on loans over six months past due, had climbed to 13% by end-1QFY22, against 7.7% at FYE19. Similarly, FLCs’ profitability remained under pressure with annualised return on assets narrowing to 1.8% in 1QFY22 from 2.8% in FY19 due to higher credit costs and declining top-line revenue. 

Fitch also said capitalisation and liquidity metrics remained relatively stable due to the limited growth opportunities.

“We believe Fitch-rated standalone FLCs largely possess adequate profit and capital loss-absorption buffers relative to their rating levels to absorb higher credit costs,” Fitch added. “Its sustained losses continue to erode its capital base. Still, FLCs’ credit profiles are highly susceptible to the strength of the economic rebound, which could determine their ability to arrest deterioration in asset quality,” Fitch added.