Sri Lanka non-bank lenders face asset quality, profitability pressure: Fitch

ECONOMYNEXT – Sri Lanka’s non-bank finance companies will face pressure on asset quality and profitability in the medium term owing to poor economic growth and slower vehicle imports, Fitch Ratings said.

Higher taxes could also make it more difficult for smaller non-banking financial institutions (NBFI) to bolster their capital, the rating agency said in a new report.

“Fitch Ratings expects Sri Lankan non-banking financial institutions to continue to face pressure on asset quality and profitability in the medium term,” it said.

“A slowdown in Sri Lanka’s economic activities and lacklustre growth in the sector’s core vehicle-financing segment continue to weigh on NBFI’s financial profiles.

“Furthermore, higher taxes on financial institutions would pose an additional threat on smaller NBFIs in meeting enhanced capital requirements due to a further weakening in internal capital generation.”

Fitch Ratings said macro-prudential policy measures taken by the authorities since 2015 to curb imports, and stringent rules on vehicle financing, could continue to dampen the lenders’ growth prospects.

Leasing and hire purchases made up the largest proportion of sector loans, with 53 percent at end-December 2018.

Loan growth year-on-year had already slowed to 9.0 percent by end-2018 from a high of 31.0 percent in 2015, due to the imposition of tighter loan-to-value ratios on vehicle-financing by the Central Bank of Sri Lanka.
(COLOMBO, March 19, 2019-SB)

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