Sri Lanka finance companies pressured by capital needs as bad loans rise: Fitch
ECONOMYNEXT – Sri Lanka’s finance and leasing companies are under pressure to raise capital and regulatory thresholds rise and bad loans pick up, which may also trigger mergers, Fitch Rating said.
By 2021, finance and leasing companies (FLCs) should have a capital of 2.5 billion rupees, from the currency 2.0 billion rupees.
Loans at sector companies had grown only 0.5 percent in the year to September 2019, against a 12.9 percent rise from 2015 to 2018.
Non-forming loans of the sector which had peaked at 7.56 percent after a currency collapse in 2013/2013 fell to 5.14 by March2016, central bank data shows.
Two currency collapses then came in rapid succession in 2015/2016 and 2018, triggering two busts in a row. Bad loans in the sector had risen to 9.69 percent, in part due to weak loans growth.
Non-performing loans were at 9.86 percent at finance companies by September 2019, and 4.47 percent at specialized leasing companies.
Meanwhile Fitch said finance and leasing companies may not be able to boost profits, as economic growth may remain weak.
“This could impede efforts to meet enhanced regulatory capital requirements by generating capital internally or by raising capital externally,” Fitch said.
“We believe this risk will be higher for smaller standalone finance companies.
“Those FLCs that have raised external capital recently, as part of efforts to meet the higher capitalization standards, have benefited mainly from support from their major shareholders.
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