NBFIs pressured by weak economic growth, vehicle sales-Fitch | Daily News

NBFIs pressured by weak economic growth, vehicle sales-Fitch

In a special report, Fitch Ratings released a report card on Sri Lanka’s Finance Companies (NBFI).

The report highlighted the following issues; stressed financial profiles, muted growth prospects, heightened risk appetite, rising NPLs, ongoing capitalization challenges, pressure on profitability, an increase in deposit funding.

On the topic of stressed financials, the report commented that ‘higher taxes on financial institutions would pose an additional threat on smaller NBFIs in meeting enhanced capital requirements due to a further weakening in the internal capital generation.’  The report highlighted policy measures taken by the authorities since 2015 to curb imports, and stringent rules on vehicle financing. They suggested this would have a negative impact on growth prospects. Focusing on risk appetites the report shows a rising exposure to non-core lending segments which aggressively expanded in the periods from 2015-17.

Commenting on the ongoing capitalization challenges the report notes a reduction in tier 1 capital stemming mainly from assigned risk weights in the new capital adequacy framework.

The report pointed to pressure on profitability driven by the fixed-rate lending practices which make it difficult for contracts to be repriced.

The report notes the increase in deposit funding keeps the companies vulnerable to price sensitivities. This will be a concern if there was market stress. The report contains a comparative look at companies that are rated by Fitch.


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