Non-performing loans of LFCs and SLCs up in 2014

Non-performing loans (NPLs) of the Licensed Finance Companies (LFC) and Specialised Leasing Companies (SLC) sector continued to show an increasing trend during 2014, the Central Bank said in a report yesterday.

The Central Bank in its report, ‘Recent Economic DevelopmentsHighlights of 2014 and Prospects for 2015’ noted that the gross NPL ratio increased to 7.6 percent as at end August 2014 from 6.7 percent as at end December 2013.“The main products that contributed to the increase in NPL ratio were finance leasing (31 percent) and hire purchases (21 percent),” the report said.

However when considering the loan loss provisions, the net NPL ratio rose only by 0.5 percent to 3 percent as at end August 2014 from 2.5 percent as at end December 2013.

Further, total assets of the LFC and SLC sector grew 9 percent to Rs.781.1 billion in the first eight months of 2014 as against a growth of 14 percent during the corresponding period of 2013 largely due to low demand for credit, the report noted.

Meanwhile the Central Bank said that credit provided by LFCs and SLCs increased by a moderate 7 percent to Rs. 594 billion in the first eight months of 2014 as against a growth of 13 percent in the corresponding period of the previous year.

“The core businesses of the sector, namely finance leases and hire purchase portfolio grew only by 2.2 percent in the first eight months of 2014, compared to 7 percent growth in the corresponding period of 2013,” the report noted.

However it added that the secured loan category recorded a growth of 19 percent in the first eight months of 2014. According to the Central Bank, the asset quality of the LFC and SLC sector has also deteriorated. The report pointed out that high lending interest rate scenario that prevailed during 2013 and gold price fluctuations that affected the business of pawning, resulted in asset quality deteriorating.

The report also revealed that 29 LFCs and SLCs have confirmed their mergers and acquisitions under the Central Bank’s consolidation programme while a few cash-strapped LFCs and SLCs are progressing under the restructuring process.

“In addition, 4 LFCs and SLCs are in the process of finalising their consolidation plans,” it said.