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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Liquidity issues haunt specialised leasing firms

Liquidity issues haunt specialised leasing firms

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CSE.SAS

CSE.SAS
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A majority of the island’s fourteen Specialized Leasing Companies (SLCs) are presently going through a tough time due to the lack of liquidity for them to expand lending since commercial banks are demonstrating a severe reluctance to finance to this segment, The Nation Gain reliably learns. The situation has arisen following the imposition of the maximum credit ceiling of 18% (23% with foreign sources) by the Central Bank of Sri Lanka (CBSL) for the local banking sector, which is intended to curtail the credit growth, the chief of the apex body for the country’s leasing sector said.

“Borrowings are the major source of funding for the SLCs and many of the companies in this sector largely depend on banks to source their lending operations. However, many companies now complain that they are unable to find their funding requirements given the current regulatory environment,” said the Chairman of the Leasing Association of Sri Lanka (LASL), Nishaman Karunapala in an interview last week.

According to him, one reason why banks may be finding it difficult to finance to the SLCs could be because almost all the banks nowadays have a leasing arm of their own, for which they would obviously give preference to, given the credit ceiling set upon them.

Unlike the Licensed Finance Companies (LFC), which is the other segment of the Non-Bank Financial Institutions (NBFI) where deposits are a major source of funding, SLC’s could be finding it difficult because they are not authorized to mobilize funds through attracting deposits.
According to the 2011 CBSL Annual Report there was a migration of two SLCs to LFC status in 2011 whilst another two more firms have been converted as LFCs year to date. Given the present scenario, analysts predict that there would more SLCs seeking finance company licenses in the future if the credit ceiling is continued for a longer period.

Meanwhile, speaking to The Nation Gain, the AGM of Finance and Treasury at Merchant Bank of Sri Lanka, a subsidiary SLC under Bank of Ceylon, Priyantha Herath said that although the problem of liquidity had been a continuous issue for a long time, the problem was aggravated after the recent policy measure by the CBSL. “After the Central Bank issued this directive what the commercial banks did first and foremost was to curtail the credit to SLC sector as their priority because we are indirectly competing with them. So it has affected us negatively,” he added.

However, similar to commercial banks going for foreign borrowings, SLCs are also allowed to tap in to this opportunity without solely depending on the local sources of funding. In addition to these conventional sources, SLCs have been issuing other debt instruments such as commercial papers and debentures to meet their liquidity requirements.

“Well, it is no wonder and the situation is quite obvious because we as bankers have our own leasing arms. So, I don’t see any logic behind the banks lending to another intermediary where they (banks) can directly reach their customer particularly under a restricted credit expansion policy era,” the CEO of DFCC Bank, Nihal Fonseka said when asked for an opinion from a bankers point of view.

http://www.nation.lk/edition/biz-news/item/7427-liquidity-issues-haunt-specialised-leasing-firms.html

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