Uptick in SME bad loans at Sri Lanka finance companies: ICRA

ECONOMYNEXT – Sri Lanka’s non-bank finance companies have seen an uptick in bad loans to small and medium enterprises after bad weather and an economic slowdown over the past year, ICRA, a rating agency said.

Non-performing loans as a share of total advances had grown from 4.89 percent in the first quarter of 2017 to 5.94 percent in the fourth quarter before easing slightly to 5.82 percent, an analysis by ICRA showed.

Sri Lanka’s finance companies had started to increase their exposure to the SME segment after credit rules were tightened  for vehicles.

“SME related loans are granted in the form of factoring, post-dated cheque discounting and short-term loans.,” ICRA said in a report.

“However, we observe increasing slippages in these product segments of the SME portfolios as the macro conditions were challenging.”

Bad weather from the last quarter of 2016 with a slowing economy had contributed to higher bad loans. Sri Lanka had one of the worst droughts in history hurting rice farming, while floods were also seen in some parts of the island amid increasingly erratic weather patterns.

Finance companies had expanded micro-lending with Grameen type group lending, about 28 percent a year from 2015 to 2017 financial years. The portfolio was now between 90 to 100 billion rupees, the rating agency said.

But credit quality in the segment was better than SMEs, ICRA said. (Colombo/June29/2018)

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