The growth in profits was a direct result of the increase in interest income which grew by 51% to reach Rs. 4.4 billion from previous year’s income of Rs. 2.9 billion.
The company was able to achieve this level of performance through its strategy of steady portfolio growth backed by effective collections leading to lower non-performing loans ratio. The portfolio recorded steady growth over the year increasing the book from Rs. 15 billion to Rs. 21 billion.
This was a growth of 38%. The company’s collection efficiency provided a strong backing to achieve this growth with the non-performing loans being contained at a ratio of 1.1%, which is one of the best NPL ratios in the industry.
The provisions made on account of bad and doubtful debts were strengthened with additional provisions of Rs. 96 million over and above the Central Bank requirements. The factoring business of CLC, commercial factors too, contributed to the increase in interest income with 73% growth over the last year to end at Rs. 795 million.
The company’s profit after tax of Rs. 2.9 billion was after providing for Rs. 263 million as taxes, of which Rs. 205 million was for income taxes and the balance being deferred taxation.
These profits were achieved by strategic expansion of its core business of lending and effective management of the borrowing costs and operating expenses.
The operating expenses of the company increased fuelling the growth in the business and expansion of the footprint throughout the island. However, these increases in expenses did not negatively affect the performance of the company, clearly demonstrating the low cost model of CLC with a superior cost to income ratio of 20%.
CLC was able to record this level of growth through its carefully planned growth strategy which was fuelled by the expansion in the distribution network of branches and service centers. The company added its 50th branch during the year and eight of these branches are located in the North and East where CLC has had a strong presence and acceptance among the public for several years. CLC now has a strong presence in the regions where access to funding is offered to the company’s target market of the lower SME and the micro sectors.
The name of the company was changed to Commercial Leasing and Finance Ltd after obtaining approval from the CB to function as a finance company.
Keeping in line with the CBSL requirements to list the company, an application was made with the Colombo Stock Exchange for listing which was accepted and the company shares were traded subsequently.
LOLC, CLC’s parent company has a unique ability of attracting long term foreign funding from a wide range of multilateral and bilateral funding agencies as a result of its long standing relationship with these institutions, and as a catalyst in channeling funding to SME and micro sectors in achieving their developmental roles in Sri Lanka.
LOLC Group not only benefits from attractive long term interest rates on these funding, but also enjoys technical services support, capacity building support and global best practice knowledge transfer on good governance practices.
CLC now enjoys the same benefits from these relationships and are able to source foreign funding for its own business expansion. During the year, the Company secured US$ 17Mn foreign borrowing from foreign funding partners. These funding comes at attractive long term rates which helps the Company to maintain a healthy level of cost of borrowings.
LOLC Group policy is to have zero foreign exchange risk with 100% hedging on all foreign borrowings. CLC too therefore follow this policy which safeguarded the Company against the foreign exchange fluctuations prevailed during the year. This policy is aligned to the mandate given by the CBSL of zero exposure to exchange risks on foreign borrowings.
Speaking about the Company’s significant financial performance, Krishan Thilakaratne, Director/Chief Executive Officer of Commercial Leasing and Finance Ltd., said, “I am pleased with the performance of Commercial Leasing and Finance.
CLC’s financial performance has spoken volumes about the Company’s strength and stability. As a Company dedicated to reaching out to the country’s Micro and SME sector, we have consciously maintained a good lending portfolio which also boasts of industry best NPL ratio. With the strategic expansion of our branch network island-wide, we are well prepared to continue extending a range of financial solutions to the rural market.”
Kapila Jayawardena, Group Managing Director/CEO of LOLC on CLC’s road map for the future said, “CLC’s future is very clear. The Company will look forward to steady growth in its core business of providing financial solutions to the SME and Micro sectors to achieve a well balanced portfolio. All activities of the company are aligned to achieve this goal.
The Company’s strong foundation of 24 years has enabled CLC to build a solid reputation for itself. Since transforming into a Registered Finance Company, public confidence in the Company has strengthened further.”