Business
Health crisis exacerbates downside risks to FLCs
‘Most of FLCs’ borrowers will not emerge unscathed from economic downturn’
The risk of a second coronavirus wave, together with weak borrower sentiment in an already fragile operating environment, would put further stress on Sri Lankan finance and leasing companies’ (FLCs) credit profiles, adding to existing pressures on asset quality and profitability, Fitch Ratings Sri Lanka said last week.
“These risks will test FLCs’ loss-absorbing capacity, but Fitch Ratings believes that the capital and profit buffers of most Fitch-rated standalone-driven FLCs’ (except for Bimputh, which will experience material capital erosion due to losses) will be adequate to cushion against moderate asset-quality shocks.
Fitch expects Sri Lanka’s real GDP to contract by 3.7% in 2020 due to the pandemic. The economic fallout has pressured the FLC sector’s asset quality with the six-months past due non-performing loans (NPLs) ratio spiking to 14.1% by end-June 2020 (1QFY21) (FYE20:11.4%). The sector’s return on assets turned negative to -2.3% in 1QFY21 (FYE20:1.9%) due to high credit costs.
“Sector’s growth challenges are worth watching. A prolonged restriction on vehicle importation and the resultant surge in second-hand vehicle prices are likely to hamper Sri Lankan FLCs’ medium-term growth prospects. The sector’s loans contracted by 0.2% yoy in 1QFY21 (CAGR of 12% FY15-FY20), and leasing and hire purchases accounted for 55% of the sector’s lending (FYE15:60%)”.
Referring to asset quality risk after moratorium, Fitch Ratings said, “We expect underlying asset-quality pressure that has been building up due to the pandemic to manifest from 3QFY21 and extend to FY22, as regulatory relief in the form of loan-repayment moratoriums has temporarily halted the recognition of credit impairments for much of this year. We believe that most of the FLCs’ borrowers will not emerge unscathed from the economic downturn because they are largely sub-prime”.
“Weak earnings due to rising credit costs and slow loan growth will weigh on FLCs’ internal capital generation. We view this risk as more acute for small FLCs which already have weak profitability buffers, with credit costs consuming more than 70% of their pre-impairment operating profits”.
“A deadline extension to meet capital requirements and lower loan growth will ease near-term capital pressures for some companies. Out of 38 licensed finance companies in the sector, nine were non-compliant with minimum capital requirements at end-September 2020 and the Central Bank of Sri Lanka (CBSL) has granted an extension to rectify the non-compliance.
“Banks’ diminished appetite to lend to the FLC sector could hurt small-to mid-sized FLCs in particular, hampering their financial flexibility. Small entities tend to rely more on bank funding, while large FLCs’ better domestic franchises will underpin their liquidity profiles”, Fitch Ratings said.
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HNB PLC once again joined the Central Bank of Sri Lanka (CBSL) to promote the ‘Rata Purama LANKAQR’ campaign to raise awareness and encourage the public in the Kandy district towards a cashless payment ecosystem.
HNB, together with other financial institutions and telecommunication partners, participated in the day-long event held at the Kandy City Center. The bank raised awareness regarding its LANKAQR integrated HNB SOLO payment app while onboarding merchants during the promotional campaign.
“During the early stages of the pandemic we witnessed many of our customers and members of the public seamlessly adopt our cashless and contactless payment app HNB SOLO. With COVID and the subsequent launch of the ‘Rata Purama LANKAQR’ campaign the number of users of these types of systems have increased exponentially.
“Given that the mutual vision of the Central Bank of Sri Lanka and HNB is for a financially and technologically empowered Sri Lanka, HNB is proud to serve as an enthusiastic partner to roll out LANKAQR island-wide. The fact that we now have merchants in the cultural capital of Sri Lanka making this shift is another major milestone in this digitalization journey,” HNB Deputy General Manager – Retail and SME Banking, Sanjay Wijemanne said.
The automated teller machine (ATM) network of Commercial Bank of Ceylon dispensed a record Rs 8.818 billion on 9th and 10th April 2021, shattering the previous records for the highest and second highest cash disbursements for a 24-hour period, as Sri Lanka’s leading private bank facilitated the celebration of the Sinhala and Tamil New Year.
The disbursements of Rs 4.498 billion on April 9 and Rs 4.320 billion on the following day represented a substantial increase over the single-day values recorded in previous years.
In total, Commercial Bank dispensed Rs 41.748 billion via its ATM network between 1st and 15th April 2021 at an average of Rs 2.783 billion per day, reaffirming the indispensable role it plays in the lives of Sri Lankans, as well as the reliability and robustness of the network. On seven of these 15 days the network dispensed more than Rs 2 billion a day, and on five days disbursements exceeded Rs 3 billion a day, the Bank said.
Comprising of 890 ATMs, the network processed 2.434 million transactions over the 15 days at an average of 168,988 transactions a day, while on 9th April, the number of transactions processed totalled 233,990 at an average of 9,749 transactions per hour or 162 transactions per minute.
The first Sri Lankan bank to be listed among the Top 1000 Banks of the World and the only Sri Lankan bank to be so listed for 10 years consecutively, Commercial Bank operates a network of 268 branches in Sri Lanka. The Bank’s overseas operations encompass Bangladesh, where the bank operates 19 outlets; Myanmar, where it has a Microfinance company in Nay Pyi Taw; and the Maldives, where the bank has a fully-fledged Tier I Bank with a majority stake.
Ceylinco General Insurance has announced an online competition with a novel concept to showcase Sri Lankan talent by providing a platform for them with the opportunity to win handsome cash prizes.
“This time, our effort is to organize an online competition that provides an opportunity for Sri Lankan people to display their talent and also to identify hidden talents whilst rewarding them. There will be five overall winners whose prize money will be over Rs. 1 million and each category winner will get Rs 100,000/-. Ten randomly picked voters too will receive handsome cash awards,” said Patrick Alwis, chairman CEO of Ceylinco General Insurance.
The guidelines and the criteria of the competition were announced recently through a dedicated website and other social media platforms: Facebook, Instagram, twitter, You Tube as well as LinkedIn. Contestants can perform under five categories, namely, singing, dancing, instrumental performances, fashion modelling and funny videos / Standup comedy. Individuals over 18 years could perform under the individual category whilst the group category will have no age limit.
Under the group category either families or a group of friends could take part. Each entry will have to be specially recorded for this competition. Prior to recording the performance, they should download the image of the logo and have it displayed prominently in the background. Performances could be recorded using a smart phone or a video cam.
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