LFC Sector Update 13

7/28/2019 LFC Sector Update 13

1/16

Published by :

RAM Ratings (Lanka) Limited(P B - 1636)

No. 11, Melbourne Avenue,Colombo 4Sri Lanka

T +94 112 553089+94 112 503551

F +94 112 553090

E [email protected] www.ram.com.lk

June 2013

LICENSED FINANCE COMPANY SECTOR UPDATE


2/16

Published by :

RAM Ratings (Lanka) Limited(P B - 1636)

No. 11, Melbourne Avenue,Colombo 4Sri Lanka

T +94 112 553089+94 112 503551

F +94 112 553090

E [email protected] www.ram.com.lk

OVERVIEW

The Licensed Finance Company (LFC) sector remained a small segment of Sri

Lankas financial institutions industry, accounting for 5.90% of its assets as at

end-December 2012 (end-December 2011: 4.60%). The notable increase in its

share of the industry was largely due to the issuance of an LFC license to the

largest specialised leasing company (SLC) in the country. Three other SLCs

had also obtained the LFC license during the year; we note that this has been

the general trend of late given the funding constraints and higher costs of

operating as an SLC. The LFC sector assets excluding these SLCs accounted for

only 4.92% of the financial institution industrys assets as at end-December2012. Following a robust 44.31% year-on-year (y-o-y) increase in assets in

FYE 31 March 2012 ("FY Mar 2012), the industrys growth slowed to an

annualised 32.75%1

in 9M FY Mar 2013 amid a slowdown in credit growth. As

at end-December 2012, the sector comprised 47 players operating with 844 2

branches across the island3

(end-December 2011: 40 players with 532

branches).

Credit growth slowed in 9M FY Mar 2013 due to a drop in demand for vehicle

financing loans as import duties spiked during the period while lending rates

and inflation remained high, thereby eroding disposable income levels. As such,

many players sought to diversify their lending portfolios, thus channelling

funds to micro-credit loans and pawn brokering. Going forward, the easing of

interest rates and inflationary pressures are expected to result in a gradual

uptick in demand for credit. While vehicle financing is expected to remain the

main growth driver, other credit assets such as pawning and microfinance are

expected to gain in prominence within the loan mix.

1Excluding the migrated entities

2Of this, Peoples Leasing Finance PLC (PLC) accounted for 35 branches (Source: PLC Annual Report 2012)3Central Bank of Sri Lanka (CBSL) Annual Report 2011/12

JUNE 2013

LFC SECTOR OF SRI LANKA

Analytical Contacts:

Christy SugirtharatnamFinancial Analyst(94)11 [email protected]

Senila JawferSenior Financial Analyst(94) 11 2553089

[email protected]


3/16

2

The LFC sectors asset quality had weakened in the 9M ended FY Mar 2013 as envisaged. Unfavourable

macroeconomic conditions and the seasoning of loans subsequent to the aggressive loan growth witnessed the

previous year had resulted in a deterioration of credit quality. As LFCs cater to a social stratum whose risk profileis higher than that of a banks clientele, the impact of the unfavourable macroeconomic environment had been

magnified in the sector. In the short term, delinquencies are expected to increase as loans have yet to season

and the sector continues to be challenged to maintain credit quality; overall asset quality, therefore, is expected

to remain at current levels. In the longer term, however, we expect asset quality to be supported by better

macroeconomic conditions, resulting in reduced incidence of non-performing loans (NPLs) and improved

recoveries.

The sector demonstrated only a modest improvement in performance due to slower credit growth in 9M FY Mar

2013. Overall margins had narrowed as funding costs increased amid a faster repricing of shorter-tenured

deposits in a high-interest rate scenario. However, the sectors yields stood higher than that of banks, thereby

resulting in wider margins. Increased lending to lower-income earners in the form of micro-finance loans hadalso given rise to lucrative margins. Notably, a strengthening of core income was witnessed as the bulk of

funding was channelled to interest-earning credit assets. This is viewed positively in light of the volatility of

returns from non-core assets such as real estate and equity investments. Going forward, while easing interest

rates are expected to result in broader margins, the benefits are expected to be offset to some extent by a

probable increase in credit costs as new NPLs trickle in with the seasoning of loans.

While customer deposits continued to be the sectors chief funding source, the funding mix increasingly tilted

towards borrowings. Given the removal of withholding tax (WHT) on listed debentures and the benefits

associated with funding via long-term debt such as the easing of inherent maturity mismatches, we expect a

further tilt towards corporate debt. Moreover, the interest rate caps on medium-term deposits ranging from 2-3

years effective January 2013 may result in LFCs increasingly relying on longer-term borrowings. However,

the funding mix is expected to remain dominated by deposits. Meanwhile, liquidity levels are expected to remain

stable amid the gradual uptick in credit demand.

Elsewhere, with almost all LFCs listed, increased transparency has resulted in better corporate governance across

the industry. While many LFCs are still closely held, regulatory requirements such as regular Central Bank of Sri

Lanka (CBSL) reporting, onsite audits by the CBSL, and increased regulatory criteria imposed on the senior

management of LFCs have contributed towards improved corporate governance. Given the recent adoption of

International Financial Reporting Standards (IFRS), we opine that financial statements will better reflect the

underlying risks faced by LFCs. The most significant change in this regard is the move towards provisioning

based on incurred loss, from time-based provisioning previously. While the shift will increase transparency in

reporting in the medium term, many players are yet to gear themselves up for the recruitment of skilled

personnel and system changes.


4/16

3

SSET QUALITY:

Asset composition largely unchanged

In comparison to the robust asset growth of 54.81% in fiscal 2012, the sector expanded at a moderate 41.15%

in 9M FY Mar 2013 (9M FY Mar 2012: 44.31%). The enlarged asset base in 9M FY Mar 2013 mainly resulted from

Sri Lankas largest leasing company securing an LFC licence during the period; the SLC had an asset base of LKR

79.83 billion as at end-December 2012, accounting for 15.51% of total LFC industry assets. Meanwhile, 3 other

leasing companies had also contributed to the expansion of industry assets when they became LFCs. Excluding

these 4 SLCs (migrated SLCs), industry growth came up to a slower 32.75%. The slower growth of the

industrys asset base was largely underpinned by weaker credit growth amidst challenging macroeconomicconditions. Credit assets only grew 31.36% in 9M FY Mar 2013 (excluding migrated SLCs) compared to 56.72%

in 9M FY Mar 2012. Nonetheless, the industrys asset composition remained relatively unchanged , with credit

assets dominating the asset mix (Chart 1). Moreover as expected, investments in land and property declined to a

meagre 1.86% of total assets, as many players disposed of real estate investments, converting them into credit

assets. We also note that many LFCs reduced their stakes in equity investments in favour of interest-yielding

assets, given the downturn in the equity market.

Chart 1: LFC industry asset mix

FY Mar 2009 FY Mar 2010 FY Mar 2011 FY Mar 20129M FY Dec

2013

Property, plant & equipment 8.34% 7.32% 6.08% 4.55% 3.76%

Other assets 9.10% 10.71% 8.37% 6.52% 7.51%Investments in land and property 8.60% 8.46% 6.11% 2.81% 1.86%

Net loans & advances 63.37% 61.40% 68.46% 76.71% 77.88%

Investment securities 0.52% 0.77% 0.87% 0.77% 0.64%

Cash and treasury assets 10.07% 11.35% 10.11% 8.63% 8.35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AssetComposition%

Sources: CBSL, RAM Ratings Lanka

A


5/16

4


2013

Leasing 31.14% 28.60% 32.69% 39.25% 42.82%

Hire purchase 37.28% 36.13% 32.69% 27.67% 27.67%

Term loans 12.16% 9.10% 6.24% 4.53% 3.30%

Pawning 5.01% 7.12% 8.86% 7.76% 7.44%

Related company loans 2.67% 3.72% 2.23% 1.44% 1.23%

Other loans 11.73% 15.34% 17.28% 19.36% 17.55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CreditAssetComposition%

Considerable slowdown in loan growth in 9M FY Mar 2013

As opposed to loan growth of69.35% in FY Mar 2012, the industrys credit assets increased 43.30% in 9M FYMar 2013. However, excluding the migrated SLCs, growth came up to a modest 14.24% in 9M FY Mar 2013,

compared to the aggressive growth posted in the preceding 2 years. Vehicle financing which accounted for the

bulk of credit assets was the worst-hit segment amidst challenging macroeconomic conditions and high import

duties. Despite the easing ofSri Lankas monetary policy, the impact of lower interest rates on credit demand is

only expected to be seen towards the latter part of FY Mar 2014, until which time loan growth is envisaged to be

relatively modest.

Drop in demand for vehicle financing

Loan growth in FY Mar 2012 stemmed mainly from vehicle financing, driven by 3-wheelers, motorcycles and

small cars (under 1000 cc), in view of the low import duties prevalent at the time. However, demand for vehicle

financing dropped subsequent to an increase in duties in the small-vehicle category and the depreciation of the

rupee, which resulted in more expensive imported vehicles in 9M FY Mar 2013. However, the industrys credit

asset mix had tilted towards vehicle financing; this is mainly due to the inclusion of the assets of migrated SLCs

which made up 24.58% of vehicle-financing credit assets as at end-December 2012. Excluding the migrated

SLCs, vehicle-financing grew only 14.61% in the 9M FY Mar 2013. With the weaker demand for vehicle financing,

we note that many players had focused on other loan products such as micro-financing and pawning (Chart 2).

Chart 2: LFC industrys credit asset mix



6/16

5

Chart 3: New-vehicle registration growth

2008 2009 2010 2011 2012

Motor Cars & dual purpose

vehicles-16.92% -69.51% 393.95% 162.78% -24.57%

Three Wheelers 4.03% -16.61% 129.23% 61.62% -28.62%

Motor Cycles -14.55% -13.16% 51.31% 23.63% -24.10%

Lorries -23.74% -41.41% 44.01% 25.10% -17.22%

Others 4.60% -41.34% 38.28% 23.86% -8.95%

-100%

0%

100%

200%

300%

400%

500%

N

ewV

ehicleregistrationgrowth%

Source: Department of Motor Traffic

Continued focus on pawn brokering

As expected, pawning remained a key growth area for the LFC sector in 9M FY Mar 2013, owing to high gold

prices during the period as well as the convenience associated with this form of borrowing. As such, pawning

advances grew at a robust 51.09% (annualised) (FY Mar 2012: 45.48%), accounting for 18.05% of total loan

growth, excluding migrant SLCs. However, since banks too offer homogenous pawning services at marginally

lower rates, LFCs compete by offering attractive loan-to-value ratios (LTV), thereby allowing a higher interest

charge to compensate for the greater degree of risk. That said, we note that LFCs are exposed to fluctuations in

the price of gold and are likely to make losses in the event of a price drop, given high LTV ratios of

approximately 75%-85% much higher than that of banks. On the other hand, the pawn loan segment which

once registered lucrative margins has seen a narrowing trend amid keen competition. Additionally, the segmentfaces risks such as the acceptance of dud articles, albeit minimal. However, we note that the sentimental value

attached to jewellery has afforded good collection rates in the past. Elsewhere, we note that pawn brokering has,

to a certain extent, helped LFC players keep their NPLs in check, as it is subject to minimal regulation under

CBSL guidelines due to the fact that it is fully collateralised against gold.

Growing focus on SME/ micro-financing

Following declining demand for vehicle financing, LFCs have increasingly focused on micro-financing, catering to

low-income, rural customers and is generally uncollateralised in nature. This further exacerbates the risk profile

of the LFC sector, which is inherently exposed to a high degree of credit risk compared to banks. Despite the

risks associated with micro-financing, many LFC players view it as a lucrative loan product which yields higher


7/16

6

margins, compensating for the high risk exposure. That said, we understand that the extensive branch reach of

players, close customer relationships, and continuous collection and monitoring play a crucial role in preserving

loan quality in micro-financing. In our experience, the group lending approach is widely adopted among manyplayers, which has resulted in better collections and low delinquency rates thus far. As such, we opine that loan

quality in this segment would depend largely on the competence of its personnel, as successful implementation

relies on constant interaction with the borrower. Higher interest rates are charged for micro-financing loans to

compensate for the high credit risk of the target market. Consequently, the LFC sector benefited from broader

margins due to increased exposure to this segment. Still considered an under-served segment, micro-financing

presents much potential for growth.

Loan seasoning results in weaker gross NPL ratio

The overall gross NPL ratio of the industry clocked in at 5.79% as at end-December 2012, remaining relatively

unchanged from 5.91% as at end-March 2012. However, excluding the migrated SLCs4, the ratio stood at 6.79%

as at end-December 2012, due to an influx of NPLs as seasoning took effect amid a non-conducive

macroeconomic environment in 9M FY Mar 2013. As LFCs cater to a social stratum whose risk profile is higher

than of a banks clientele, the impact of unfavourable macroeconomic conditions was magnified in the sector.

Going forward, in the short to medium term, delinquencies are expected to increase as loans have yet to season.

However, given easing interest rates and lower inflation as forecasted by the CBSL, improved credit quality could

be expected in a better macroeconomic environment, resulting in fewer new non-performing loans (NPLs) and

improved recoveries.

ROFITABILITY:

Moderate growth in NII

Following moderate growth in the LFC sector, the overall financial institutions industry recorded a Net Interest

Income (NII) of LKR 30.29 billion in 9M FY Mar 2013 (9M FY Mar 2011: LKR 18.27 billion). However, excluding

the migrated SLCs, NII recorded a moderate annualised growth of 29.12% from FY Mar 2012 as the growth in

interest expenses outpaced the growth in interest income. The interest income grew a modest 46.15%

(annualised) while interest expenses spiked 62.15%, reflecting the re-pricing of short-term deposits amidst

increasing interest rates.

4

This was largely due to PLCs delinquency rate of approximately 1.19%.

P


8/16

7

NIMs pressured

Subsequent to broader NIMs in FY Mar 2012 as a result of increased investments in high-yielding credit assets atthe time, the industrys NIM clocked in at 9.18% in 9M FY Mar 2013. Excluding the migrant SLCs, the margin

narrowed to 8.48% compared to 8.74% in FY Mar 2012. While yields improved following increased exposure to

lucrative products such as pawn loans, small-ticket loans and micro-finance loans, funding costs grew at a faster

pace owing to a rising interest-rate scenario, where deposits repriced faster than credit assets, which resulted in

narrower NIMs. Going forward, the sectors NIMs are expected to benefit from lower interest rates coupled with

increased investments in higher-yielding assets in the immediate near term. however the margins are expected

to stabilise in the medium term.

Reduced reliance on non-core income

Overall reliance on non-interest income reduced in 9M FY Mar 2013 as most players channelled funds from

investments in equity and real estate to interest-yielding assets. This shift is viewed favourably as the sector has

reduced its dependence on non-core income which is exposed to equity market fluctuations and real-estate

market sentiment.

Weaker cost to income levels

Despite improving gross income levels, the sectors overall cost to income ratio weakened to 59.99% in 9M FY

Mar 2013 (FY Mar 2012: 54.66%), while the ratio, excluding the migrant SLCs, stood at 60.99%. While overall

costs had deteriorated only slightly, given minimal branch expansion in 9M ended FY Mar 2013, the ratio

weakened amid a contraction in gross income following slower credit growth. Moreover, we note that theslowdown in credit growth had also resulted in the new branches of most players experiencing protracted

breakeven periods. The cost-to-income ratio varies widely across the sector, depending on the expansion

strategies of each player. However, in the short to medium term until credit growth picks up, profitability is

expected to be pressured by the sectors high cost profile.

UNDING & LIQUIDITY :

Customer deposits continued to be the sectors chief source of funding, accounting for 57.45% of its funding

composition as at end-December 2012 (Chart 5). However, the sector increased its reliance on long-term

borrowings in FY Mar 2012, given the slower growth of customer deposits compared to credit assets and to

address inherent asset-liability maturity mismatches. Borrowings surged 151.01% in FY Mar 2012, charting a

further growth of 66.73% in 9M FY Mar 2013. However, migrated SLCs accounted for 68.60% of growth in 9M FY

Mar 2013, given that borrowings are the chief source of funding of SLCs. Customer deposits rose 27.06% and

28.33%, respectively in FY Mar 2012 and 9M FY Mar 2013. Increased reliance on borrowing to finance credit

assets resulted in the industrys loans to deposits ratio deteriorating to 157.79% as at end-December 2012 (end-

March 2012: 141.31%). Going forward, the industry is expected to increase its dependence on long-term

borrowings, given the removal of WHT in respect of listed debentures, and the medium-term deposit interest-

rate cap introduced by the CBSL, with effect from (w.e.f) 1 January 2013.

F


9/16

8

Chart 5: Funding mix


2013

Customer deposits 66.52% 75.44% 72.63% 59.92% 57.45%

Borrowings 17.28% 11.48% 14.89% 24.36% 23.48%

Shareholders' funds 16.20% 13.08% 12.47% 15.72% 19.07%

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FundingComposition%


Chart 6: Deposit growth of LFCs vs banks

0

5

10

15

20

25

30

35

40

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Percent

Growth of Savings and Time Deposits (Year-on-Year)

LCBs LSBs LFCs Overall

Source: CBSLLCB: Licensed Commercial Bank; LSB: Licensed Specialised Bank;


10/16

9

Reduced maturity mismatches

As a result of the Government of Sri Lankas move to withhold tax on interest income from debt securities listed

on the Colombo Stock Exchange on or after 1 January 2013, in the national budget for fiscal 2013, we anticipate

demand for borrowings via listed debentures to rise over the medium term. The move to secure long-term

funding is expected to ease inherent maturity mismatches in the industry. On the other hand, we also note that

such borrowings will result in large bullet repayments, requiring greater emphasis on effective treasury

management.

Improving liquidity position given slower loan growth

The industrys statutory liquid asset ratio improved to 15.22% as at end -December 2012 from 14.08% as at

end-March 2012 (end-March 2011: 13.05%) amid slower credit growth. However, going forward, the liquidity

ratio is expected to remain stable in light of the anticipated gradual uptick in credit demand.

APITALISATION:

The sectors capitalisation levels improved in FY Mar 2012 owing to several strategic capital injections to

previously distressed LFCs. As at end-December 2012, capital funds grew only 12.49%, excluding the migrant

entities, in 9M FY Mar 2013 (52.24% including migrant entities), given minimal capital injections and a lowerinternal capital-generation ratio of 19.64% during the period. The CBSL has revised the minimal core capital

requirement of LFCs from LKR 300 million to LKR 400 million, w.e.f 1 January 2015. Although larger players in

the industry have already met the requirement, we understand that smaller LFCs would be challenged to raise

additional equity.

Overall, we note that most LFCs had, by end-March 2012, adhered to the tier 1 and tier 2 Risk Weighted Capital

Adequacy Ratio (RWCAR) levels of 5.00% and 10.00%, respectively, stipulated by the CBSL; some players

reported a moderation in their RWCARs amid aggressive loan growth. Going forward, given an increased focus on

raising long term debt, the industrys tier-2 capitalisation levels could strengthen5 in the medium term. As

demand for credit is expected to increase with a lag effect following rate cuts, capitalisation levels are not

expected to be challenged in the near term.

5

Borrowings will be included in tier-2 capital only if they are subordinated and adhere to specific requirements of the CBSL

C


11/16

10

ORPORATE GOVERNANCE & REPORTING FRAMEWORK

Following the listing of most LFCs by end-December 2012, the sectors corporate governance framework is has

strengthened, with greater transparency in reporting financial statements and other related disclosures. Larger

players were seen to focus more on risk management-related activities. However, we note that players owned by

conglomerates could be exposed to group-related risks.

On another note, LFCs adopted the Sri Lanka Financial Reporting Standards, w.e.f 1 January 2012, as opposed to

the previous Sri Lankan Accounting standards. The most significant change is the move towards provisioning

based incurred loss, from time-based provisioning previously. The new reporting standards are expected to

better reflect the underlying risk profile of financial institutions, as they identify impairment based on asset-

specific risk factors as opposed to the blanket time-based method used previously.

However, the shift requires significant changes to the Information Technology (IT) systems of the companies in

order to generate past probabilities of default in each risk pool and the resultant loss given default. Further, the

move places great emphasis on personnel involved in identifying impaired loans, given that credit staff are now

required to identify impaired loans a function carried out mainly by the finance division in the past. In this

regard, many industry players are still to have systems and personnel in place to fully benefit from the adoption

of IFRS.

ATING CONSIDERATIONS:

As loan seasoning took effect subsequent to aggressive loan growth in FY Mar 2012, most players witnessed a

weakening of credit quality. This has continued to weigh down the sector in 9M ended FY Mar 2013 and LFCs

continue to be challenged to maintain credit quality in the short to medium term. As such, overall asset quality is

expected to remain at current levels. In the longer term, however, we expect asset quality to be supported by

improving macroeconomic conditions, resulting in fewer incidences of NPLs and improved recoveries. Growth in

credit assets had upheld the sectors overall performance in fiscal 2012 and in 9M FY Mar 2013. Anticipated

broader margins amid easing interest rates, while auguring well for the sector, are expected to be offset, to

some extent, by the probable increase in credit costs as new NPLs trickle in. All in all, an overall gradual

improvement in performance is expected in the short to medium term, resulting in improved capitalisation levels.

While funding mix is expected to remain relatively unchanged, however, an increasing tilt towards corporate debt

is expected as LFCs seek funding from listed debentures. Meanwhile, liquidity levels are expected to remain at

current levels with the gradual uptick in demand for credit expected going forward. All said, we opine that the

outlook on the long-term financial institution ratings of LFCs rated by RAM Ratings Lanka will be stable in 2013,

as reflected by the stable outlook on the long-term ratings of most entities within our portfolio.

C


12/16

11

Chart 7: LFCs rated by RAM Ratings Lanka

Source: RAM Ratings Lanka


13/16

12

Financial Summary LFC Industry

BALANCE SHEET (Rs. Million) 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 30-Dec-12

ASSETS

Cash & Money At Call 3,261.22 4,252.02 5,406.84 7,028.26 11,256.12

Deposi ts & Placements With F inanc ial Insti tutions 5,839.31 3,447.30 2,550.14 8,331.15 10,377.93

Securities Purchased Under Resale Agreements 0.00 0.00 0.00 0.00 0.00

Securities

Dealing Securities 7,304.33 13,253.30 15,863.55 16,132.00 21,354.24

Investment Securities 847.03 1,413.81 2,048.02 2,810.52 3,314.02

Gross Loans & Advances 108,986.39 122,798.43 172,656.24 292,391.85 421,863.67

Interest-In-Suspense 1,947.76 2,665.55 2,731.95 3,842.88 9,330.38

General Loan Loss Reserves 1,516.24 3,083.42 3,499.94 2,474.85 2,209.00

Specific Loan Loss Reserves 2,305.77 3,676.30 5,110.48 6,253.02 9,347.34

Net Loans & Advances 103,216.62 113,373.16 161,313.87 279,821.10 400,976.95

Investments in Subsidiaries/Assoc iates 1,323.14 2,046.75 2,517.50 1,848.76 5,365.14

Investment Land and Properties 14,004.97 15,617.96 14,404.33 10,267.90 9,586.89

Other Assets 13,503.09 17,735.10 17,206.17 21,951.84 33,288.05

Property, Plant and Equipment 13,576.52 13,518.98 14,315.43 16,583.23 19,371.64

TOTAL ASSETS 162,876.24 184,658.38 235,625.85 364,774.76 514,890.97

LIABILITIES

Customer Deposits

Savings 2,401.89 3,568.00 6,123.58 6,401.91 4,854.85Fixed 95,114.18 121,187.56 148,873.60 190,767.79 248,515.55

NIDs 763.57 829.46 840.80 843.52 746.67

Interbank Deposits 0.00 0.00 0.00 0.00 0.00

Bills & Acceptances Payable 1,529.97 2,752.83 4,405.78 6,389.95 9,383.47

Securities Sold Under Repurchase Agreements 0.00 0.00 0.00 0.00 0.00

Other Borrowing 25,283.64 19,055.75 31,807.84 77,764.78 129,305.79

Subordinated Debt & Hybrid Capital 242.74 50.00 150.00 2,739.50 4,915.08

Other Liabilities 13,606.94 15,435.40 16,659.30 27,920.61 38,085.69

TOTAL LIABILITIES 138,942.93 162,879.00 208,860.90 312,828.05 435,807.10

Paid-up Capital 5,961.12 8,211.34 16,338.61 30,114.53 47,514.68

Minority Interest 0.00 0.00 0.00 0.00 0.00

Share Premium & Other Reserves 14,018.13 15,460.72 14,834.79 20,536.04 25,923.70

Statutory General Reserve 2,432.84 2,774.99 4,537.55 4,701.71 6,026.78

Retained Profits/(Loss) 1,521.22 (4,667.68) (8,946.00) (3,405.57) (381.28)

Total Shareholders' Funds 23,933.31 21,779.38 26,764.95 51,946.71 79,083.87

TOTAL LIABILITIES & SHAREHOLDERS' FUND 162,876.24 184,658.38 235,625.85 364,774.76 514,890.97


14/16

13


I NCOM E STATEM ENT (Rs. M il lion) 31-Mar-09 31-Mar-10 31-M ar-11 31-M ar-12 30-Dec-12

Interest Income 31,465.39 33,850.13 37,209.36 54,139.71 71,094.07

Less: Amortisation Of Premium/(Accretion Of Discou 0.00 0.00 0.00 0.00 0.00

Less: Net Interest Suspended 0.00 0.00 0.00 0.00 0.00

Less: Interest Expense 22,429.97 23,307.64 20,582.64 27,915.00 40,798.64

Net Interest Income 9,035.42 10,542.49 16,626.72 26,224.71 30,295.43

Non-Interest Income 4,019.45 3,026.26 5,794.75 10,346.09 8,522.14

Gross Income 13,054.87 13,568.75 22,421.46 36,570.80 38,817.58

Personnel Expenses 3,529.56 4,156.14 5,231.31 7,301.36 8,837.53

Other Non-Interest Expenses 6,774.10 7,153.71 9,632.81 12,688.27 14,448.84

Loan Loss Provisions 1,445.47 2,132.72 1,635.66 (277.08) 1,258.78Share of results of Associated Companies 0.00 0.00 0.00 0.00 0.00

Pre-Tax Profit 1,305.74 126.18 5,921.68 16,858.26 14,272.42

Taxation 994.19 1,509.06 3,391.40 4,558.21 4,507.69

Profit After Tax 311.55 (1,382.88) 2,530.28 12,300.05 9,764.73

Extraordinary Items 0.00 0.00 0.00 0.00 0.00

Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00

Minority Interests 0.00 0.00 0.00 0.00 0.00

Transfer To Statutory Reserves 0.00 0.00 0.00 0.00 0.00

Transfer To Other Reserves 0.00 0.00 0.00 0.00 0.00

Dividend 0.00 0.00 0.00 0.00 0.00

Retained Profit For The Year 311.55 (1,382.88) 2,530.28 12,300.05 9,764.73


15/16

14


KEY RATIOS (%) 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 30-Dec-12

Profitability

Net Interest Margin 5.85% 6.07% 7.91% 8.74% 9.18%

Non-Interest Income Margin 2.60% 1.74% 2.76% 3.45% 2.58%

Cost To Income 78.93% 83.35% 66.29% 54.66% 59.99%

Return On Assets 0.85% 0.07% 2.82% 5.62% 4.33%

Return On Equity 5.57% 0.55% 24.40% 42.84% 28.34%

Dividend Payout 0.00% 0.00% 0.00% 0.00% 0.00%

Asset Quality

Gross NPL Ratio 6.46% 7.90% 7.60% 5.91% 5.79%

Net NPL Ratio 4.40% 4.99% 4.74% 3.83% 3.60%Specific Loan Loss Provisions For Current Year 1.34% 1.86% 0.29% 0.21% 0.84%

Gross NPL Coverage 55.31% 71.23% 66.66% 51.16% 48.41%

Loan Loss Reserve Coverage 3.57% 5.63% 5.07% 3.02% 2.80%

General Loan Loss Reserve Coverage 1.45% 2.65% 2.12% 0.88% 0.55%

Liquidity & Funding

Liquid Asset Ratio 15.49% 16.49% 14.84% 14.85% 15.68%

Statutory Liquid Asset Ratio 15.84% 15.62% 13.05% 14.08% 15.22%

Customer Deposits To Total Interest Bearing Funds 78.41% 85.17% 81.08% 69.50% 63.89%

Loans To Deposits Ratio 105.02% 90.28% 103.51% 141.31% 157.79%

Loans To Stable Funds Ratio 75.96% 72.33% 78.45% 87.20% 88.27%

Capital Adequacy

Shareholders' Funds To Total Assets 14.69% 11.79% 11.36% 14.24% 15.36%

Tier 1 Risk Weighted Capital Adequacy Ratio 12.63% NA NA NA NA

Overall Risk Weighted Capital Adequacy Ratio 14.61% NA NA NA NA

Internal Rate Of Capital Generation 2.64% (4.09%) 11.55% 31.50% 19.64%


16/16

15

StandPoint Commentary

RAM Ratings Lanka receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes

third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no

influence on RAM Ratings Lankas credit opinions or other analytical processes. In all instances, RAM Ratings Lanka is committed to preserving the

objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM

Ratings Lanka reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

No statement in this paper is to be construed as a recommendation

to buy, sell or hold securities, or as investment advice, as it does not

comment on the security's market price or suitability for any

particular investor.

Published by RAM Ratings (Lanka) Ltd

Reproduction or transmission in any form is prohibited except by

permission from RAM Ratings (Lanka) Ltd.

Copyright 2013 by RAM Ratings (Lanka) Ltd

LFC Sector Update 13

Documents

Transcript of LFC Sector Update 13