Banking

Sri Lanka’s LOLC Finance’s ICRA rating confirmed at [SL]A

Friday December 25, 2020 3:11 pm

ECONOMYNEXT – ICRA Lanka said it was confirming a [SL] A rating of LOLC Finance Plc, with a stbel outlook taking a consolidated view of the group, with gearing reduced after an asset sale in Cambodia, despite rising bad loans in Sri Lanka.

LOFC had reported a risk-weighted core capital adequacy ratio of 13.5 percent (total CAR 15.0 percent) in June 2020, from 13.3 percent (total CAR 14.7 percent) in March 2020.

Gearing has improved to 4.4 times in June 2020, from about 5.8 times in September 2019 and 7.3 times in March 2019, ICRA said.

Capitalization of LOFC has improved with a 4.8 billion rights issue in August 2019.

CLC’s with risk-weighted core CAR reported at 21.6 percent in June 2020, compared to 21.8 percent in March 2020.

But non performing loans were rising.

LOFC’s Gross NPA ratio increased to 15.2 percent in September 2020, from 11.0 percent in March 2020 and 8.3 percent in September 2019.

NPA increase of CLC and LDFP is relatively moderate where

CLC reported a Gross NPA ratio of 7.9 percent in September 2020, compared to 7.1 percent in March 2020 and 5.7percent in September 2019.

LDF had reported a Gross NPA ratio of 8.8 percent in June 2020, compared to 8.0 percent in March 2020 and 7.7 percent in September 2019.

“Relatively higher slippages of LOFC are mainly attributable to the company’s SME-business lending exposures,” ICRA said.

During 2020, LOFC has written-off about 6.1 billion rupees in non-performing loans, accounting for about 63 percent of the 9.6 billion group write-offs during the period.

Despite the NPA increase in local NBFIs, the group NPA level remains relatively lower due to healthy asset quality indicators of overseas exposures; NPA of the overseas portfolio was 0.6 percent in June 2020, 0.3 percent in March 2020 and 0.8 percent in September 2019.

LOLC’s group net interest margin had to 5.2 percent in FY2020, from 5.8 percent in 2019 amid weak loan growth in local non bank financial institutions. Group NIM had fallen to 3.3 percent in the six months ended September 2020, after the sale of PRASAC Cambodia in April.

The full statement is reproduced below

ICRA Lanka Reaffirms the ratings of LOLC Finance PLC

ICRA Lanka Limited has reaffirmed the issuer rating of [SL]A (pronounced as S L A) with Stable outlook for LOLC Finance Company PLC (“LOFC” /”the Company”). ICRA Lanka has also reaffirmed the issue rating of [SL]A- (pronounced as S L A Minus) with Stable outlook for the LKR 3,500 Mn Subordinated Unsecured Redeemable Debenture Programme of the Company.

Rationale

ICRA Lanka has taken a consolidated view of the performance of the LOLC group, which has interests in various segments including financial services, insurance, manufacturing, trading, plantations, renewable energy and leisure for arriving at the ratings. However, the group performance is primarily driven by the finance sector of the group and hence the ratings reflect the same.

The ratings factor in the group’s long track record and leadership position in the Sri Lankan NBFI sector, its experienced management team, commensurate risk management systems and its adequate funding profile.

The ratings also take comfort from the improved capitalization and liquidity profile of the group, post PRASAC divestment.

Group gearing[1] has reduced to about 2.6 times as in September 2020, from 5.3 times in March 2020.

LOLC has access to funding, through its diversified funding profile, which includes local and foreign funding partners.

However, ICRA Lanka takes note of the weakening in the asset quality profile of its Sri Lanka based non-bank finance companies (NBFCs) and the deterioration in the overall earnings profile during 6MFY2020, as NIM moderated and credit cost increased.

Group’s ability to control incremental slippages and improve the overall asset quality over the next 6M will be a key monitorable, going forward.

While ICRA Lanka takes cognisance of the diversification to newer geographies (Cambodia, Myanmar, Indonesia and Pakistan) over the recent past by the LOLC group, ability to manage country specific risks across businesses and regulatory cycles would be crucial from a rating perspective.

Further, ICRA Lanka would continue to monitor the performances of the non-financial service entities and their contribution to the overall group going forward.

Outlook: Stable

ICRA Lanka believes that the LOLC group, on the back of its established presence, business experience and fund raising ability would be able grow its businesses and provide timely and adequate capital support to the various group entities. The outlook may be revised to ‘Negative’ in case of further weakening in the profitability and asset quality indicators of the group. The outlook maybe revised to ‘Positive’ in case of a significant improvement in overall financial profile of the group and if the portfolio profile and asset quality improve.

Key rating drivers

Credit strengths

One of the largest financial services group, with experienced, strong management team and risk management systems: LOLC group is one of the largest financial conglomerates in Sri Lanka with a consolidated asset base of LKR 778 Bn as in September 2020 (reduced from LKR 1,336 Bn in March 2020, which included PRASAC that was divested in April 2020) and an aggregate branch network of over 220, island-wide.

The group’s operations can be broadly identified under financial and non-financial sectors, with the finance sector (including insurance) contributing to about 89% of the group assets and 82% of the group revenue in September 2020.

The LOLC group has an experienced senior management team, with knowledge in retail lending, micro-lending, and SME financing. The group has centralised the key business functions like IT & MIS, human resources, finance & accounts, and risk management.

The centralised model gives a competitive advantage to LOLC group entities by optimising the overall operating costs. LOLC has been able to leverage its expertise to expand into regional markets in Asia and Africa. LOLC is the only Sri Lankan financial institution to significantly expand its reach in the international markets.

Fairly diversified group level exposures: The LOLC group commenced its operations 40 years back in Sri Lanka. With time LOLC has diversified its finance sector operations to Cambodia, Myanmar, Indonesia, and Pakistan. As in March 2020, the group portfolio stood at about LKR 897 Bn, and the same has moderated to about LKR 399 Bn with the divestment of its flagship entity PRASAC in Cambodia.

The group has a geographically diversified portfolio with Sri Lanka accounting for about 57% of the total exposures as in June 2020, followed by Cambodia (39% of the portfolio) and Myanmar (4% of the portfolio). The group also has smaller NBFIs in Pakistan, Indonesia, and the Philippine.

Going forward, the company is expecting to further diversify its global presence to East Asia and Africa using the proceeds from the divestment of PRASAC. ICRA Lanka would monitor the country risks of the new investments, as the future growth for the group is likely to come from these international markets. In addition to the finance sector, the group has significant investments in the manufacturing, trading, leisure, and plantations sectors.

However, the group’s performance over the medium term is likely to be driven by the core finance sector. Within the finance sector also, the group has a fairly diversified exposure profile that includes vehicle financing, SME lending, and micro-lending. Going forward, LOLC’s Sri Lankan NBFIs will focus on asset-backed lending, while overseas operations will mostly focus on micro-related lending.

Healthy funding profile of the group with access to funding: The Group has a diversified funding base that consists of public deposits, bank funding, debt instruments, and funding lines from multilateral institutions. LOLC group has the advantage of having long-standing relationships with DFIs such as IFC, FMO, DEG, and DWM, that provide long term funding at favourable terms.

ICRA Lanka notes that the two key local NBFIs, LOLC Finance (LOFC) and Commercial Leasing & Finance (CLC) have strong deposit franchises due to their extensive reach and brand recognition, while the smaller entity LOLC Development Finance (LDFP) is dependent on bank loans and funding from the parent company.

The ratings also take comfort from the healthy liquidity profile of the group, with excess funding at both holding company and operating entity levels. As in September 2020, LOLC holdings (stand-alone) had liquid assets/investments and unutilized funding lines of about LKR 10.4 Bn, with several funding lines, in the pipe-line, pending approval.

Adequate capitalisation of key operating companies and the significant improvements in the holding company’s capitalization profile with PRASAC divestment: The capitalisation of the LOLC group’s local financial subsidiaries improved as a result of the slowdown in portfolio growth and capital infusions made over the last three years.

LOFC reports a risk-weighted core capital adequacy ratio of 13.5% (total CAR 15.0%) in June 2020, as compared to 13.3% (total CAR 14.7%) in March 2020; gearing has improved to 4.4[2] times in June 2020, from about 5.8 times in September 2019 and 7.3 times in March 2019.

ICRA Lanka notes that the overall capitalization of LOFC has improved with the LKR 4.8 Bn rights issue in August 2019. CLC’s capitalization levels remained comfortable with risk-weighted core CAR reported at 21.6% in June 2020, compared to 21.8% in March 2020.

CLC’s gearing stood at 2.7 times in June 2020, compared to 2.6 times in March 2020 and 3.0 times in March 2019. LDFP reported a risk-weighted core capital adequacy ratio of 11.1% in June 2020, compared to 11.2% in March 2020. LDFP’s gearing was 5.7 times in June 2020, compared to 5.7 times in March 2020 and 4.3 times in March 2019.

ICRA Lanka expects the capitalization of the local NBFIs to remain comfortable over the short to medium term due to the muted growth outlook in the sector. ICRA Lanka notes that the holding company’s capitalization profile and that of the overall group have significantly improved with the divestment of PRASAC in April 2020.

Group gearing has moderated to about 2.6 times in September 2020, from about 5.3 times in March 2020 and 5.9 times in March 2019.

The gearing of the holding company at the stand alone level has also moderated to about 1.2 [3]times in September 2020, from about 2.1 times in March 2020 and 1.6 times in March 2019, as the group has utilized the bulk of the divestment proceeds repatriated to Sri Lanka to repay the debt at the holding company level.

Credit challenges

Sharp deterioration of asset quality of the local entities, largely due to the challenging macro environment that prevailed during the period.

The LOLC group’s asset quality of the local operations weakened as a result of adverse macroeconomic conditions, including the Easter events in April 2019, and the recent COVID-19 outbreak.

ICRA Lanka notes that LOFC has contributed to the bulk of the NPA increase over the last 12M; LOFC’s GNPA ratio increased to 15.2% in September 2020, from 11.0% in March 2020 and 8.3% in September 2019.

However, the NPA increase of CLC and LDFP is relatively moderate where CLC reported a GNPA ratio of 7.9% in September 2020, compared to 7.1% in March 2020 and 5.7% in September 2019, while LDF reported a GNPA ratio of 8.8% in June 2020, compared to 8.0% in March 2020 and 7.7% in September 2019.

Relatively higher slippages of LOFC are mainly attributable to the company’s SME-business lending exposures. ICRA Lanka notes that the local NBFIs of LOLC group have written-off a sizable portion of its NPAs over the last three years.

During FY2020, LOFC has written-off about LKR 6.1 Bn non-performing loans, accounting for about 63% of the LKR 9.6 Bn group write-offs during the period.

Despite the NPA increase in local NBFIs, the group NPA level remains relatively lower due to healthy asset quality indicators of overseas exposures; NPA of the overseas portfolio was 0.6% in June 2020, vis-à-vis 0.3% in March 2020 and 0.8% in September 2019.

Weakened group earnings profile: LOLC’s group NIM moderated in FY2020 (NIM 5.2% in FY2020, vis-à-vis 5.8% in FY2019), mainly due to the muted loan growth in local NBFIs during the period. Group NIM further moderated to about 3.3% during the 6M ended September 2020, with the divestment PRASAC in April 2020.

PRASAC was the largest NBFI of the group, accounting for about 47% of the group assets in March 2020, and the entity reported attractive NIMs on its lending portfolio. Also, LOLC Group saw a sharp increase in loan impairment costs in FY2020 and the 6M ended September 2020, due to higher delinquency levels, especially in the local NBFI segment (mainly at LOFC). Group credit cost (loan impairment/ATA) increased to 3.1% during the 6M ended September 2020, compared to 1.6% in FY2020 and 1.5% in FY2019.

ICRA Lanka also notes that sustained losses of the group’s leisure sector (non-finance) have affected the overall group earnings. The leisure sector reported a loss before tax of LKR 1.9 Bn during the 6M ended September 2020, vis-à-vis a loss of 2.9 Bn in FY2020 and a loss of LKR 2.2 Bn in FY2019, due to the challenging outlook in the tourism sector.

The Group witnessed a moderation of overall profitability during FY2020, where the Group reported an operating profit of LKR 21.1Bn in FY2020, down from LKR 26.8 Bn in FY2019. For the 6M ended September 2020, the Group reported an operating loss (after credit cost) of LKR 20 Mn. However, the group reported a net profit of LKR 41.3 Bn for the 6M ended June 2020, due to the LKR 42.9 Bn gain on PRASAC divestment.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: ICRA Lanka’s Credit Rating Methodology for Non-Banking Financial Institutions

About LOFC:

LOLC Finance PLC (LOFC), (set up in 2001) established initially as a wholly owned subsidiary of LOLC Holdings, has a strong Retail Franchise among Licensed Finance Companies (LFCs) in Sri Lanka.

In July 2011, as per the Central Bank of Sri Lanka (CBSL) directions, LOLC divested 10% of its stake in LOFC and was listed on the Colombo Stock Exchange (CSE). The LOLC Group is one of the largest business groups in the country, with the parent (LOLC) being among the first leasing company to be established in Sri Lanka.

The LOLC group has interests in trading, plantation, leisure and energy. LOFC offers savings and deposits in local and foreign currency, extends loans mainly for auto finance and Islamic finance.

During the year ended March 31, 2020, LOFC reported a net profit of LKR 3,780 Mn on a total asset base of LKR 192 Bn as compared to a net profit of LKR 5,963 Mn on a total asset base of LKR 211 Bn in the previous financial year. The company reported a net profit of LKR 180 Mn for the H1FY2021 on a total asset base of LKR 180 Bn.

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)

Markets

Sri Lanka stocks trend lower day after budget reading

Friday November 13, 2026 11:16 am

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange was trending lower on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.66 percent.

The ASPI was down 146.78 points at 22,011, while the more liquid S&P SL20 was down 0.94 percent, or 59.99 points, at 6,306.

Positive contributors to the ASPI were Access Engineering (up 1.30 percent at 85.80 rupees), LAUGFS Gas (up 3.31 percent at 49.90 rupees), Ceylon Tobacco Company (up 1.13 percent at 1,830 rupees), Ceylon Cold Stores (up 0.80 percent at 126 rupees), and Namunukula Plantations (up 1.79 percent at 68.10 rupees).

LOLC Holdings (down 1.03 percent at 409.75 rupees), Hatton National Bank (down 0.61 percent at 409 rupees), Sunshine Holdings (down 3.81 percent at 30.30 rupees), and Sampath Bank (down 1.91 percent at 154 rupees) were top negative contributors.

Market turnover was 1.55 billion rupees. Capital goods led turnover with 459.57 million rupees. (Colombo/Nov13/2026)