Sri Lankan financial firms hit by import controls: Fitch

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ECONOMYNEXT – Sri Lankan leasing companies have been hit by import controls as imports of new cars have been banned, Fitch Ratings said, while second-hand prices have also risen.

“Rising used vehicle prices due to the limited supply of new vehicles has reduced affordability and will most likely weaken future demand for vehicle finance,” said Fitch.

Instead of increasing rates to half on money printing and restoring monetary stability, Sri Lanka has banned vehicle imports and now also restricts underwear and electronics.

Fitch believes the ban should remain in place at least until the end of 2022.

“This has caused an increase in the demand for used vehicles, inflating prices by around 50% depending on the type of vehicle,” the rating agency said.

“The higher prices have supported loan collections following a short-term repossession, but may expose LTCs to unexpected large price corrections.”

Total industry lending had contracted 2.2% in the year through June 2021, marking the fifth straight quarter of lending contraction for the industry, Fitch said.

The sector’s non-performing loan ratio, based on loans past due for more than six months, climbed to 13.0% in June from 7.7% in March.

Profitability as measured by annualized return on assets fell to 1.8% in Q1 FY22 from 2.8% in FY19 due to rising costs of credit and declining revenues.

“Capitalization and liquidity measures have remained relatively stable due to limited growth opportunities,” the rating agency said.

“We believe that stand-alone FLCs rated by Fitch largely have adequate capital and profit absorption cushions relative to their rating levels to absorb higher credit costs, with the exception of Bimputh Finance. PLC (B- (lka) / Rating Watch Negative). “

“Its sustained losses continue to erode its capital base. Nonetheless, the credit profiles of FLCs are very sensitive to the strength of the economic recovery, which could determine their ability to halt deterioration in asset quality. “


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