Vallibel Finance 2Q profits strong despite...
Vallibel Finance PLC, a licensed finance company with assets of slightly over Rs.43 billion, reported higher profits for the quarter ended September 30, 2018 (2Q19) but showed signs of pressure on asset quality and moderation in loan growth and leases.
The company reported earnings of Rs.19.02 a share or total earnings of Rs.263.5 million for the July-september period, compared to Rs.21.46 a share or Rs.231.7 million in total earnings reported for the same period, last year.
The total earnings showed a 13.7 percent gain during the two periods but the per share earnings reported a decline as the company issued 17.3 million shares in a rights issue this April.
The company raised Rs.1.04 billion through the rights issue to strengthen its Tier I capital base while expanding its loans and leases book.
The billionaire investor Dhammika Perera through his Vallibel group controls Vallibel Finance.
Perera directly holds a 21.43 percent stake in the company while his Vallibel Investments Private Limited has a further 51.44 percent stake, effectively adding up to a 72.87 percent stake in the company.
Meanwhile, the pre-provision income of the group rose by 28.3 percent year-on-year (YOY) to Rs.1.02 billion on the net interest income of Rs.799.4 million for the three months, up 27.2 percent YOY.
The company showed a notable increase of 163.9 percent YOY in provisions made for possible loans and other loans to Rs.62.9 million.
Meanwhile, for the six months ended September 30, 2018, the company reported earnings of Rs.19.03 or Rs.527.4 million, compared to Rs.20.07 a share or Rs.433.3 million.
The pre-provision income was Rs.1.99 billion for the six months, up 29.1 percent YOY.
Despite the still strong net interest income, the financials for the period showed the pressure building up on the company’s interest margins and signs of moderation in the loans and leases portfolios. The interest expenses rose by 26 percent YOY to Rs.2.1 billion while the interest income rose by 26.7 percent YOY to Rs.3.7 billion, which shows acceleration in the growth in the cost of funds.
The bank raised Rs.1.7 billion in new deposits with a growth of 7.9 percent during the six months while it raised Rs.1.8 billion in fresh borrowings to match the growth in loans and leases.
The licensed finance companies had to offer the ceiling rate for their deposits to compete with their banking counterparts who also offered attractive rates for deposits lately.
Meanwhile, the loans and leases grew by Rs.4.8 billion or 15.5 percent from the beginning of the financial year with much of the growth coming from loans as leases moderated.
As the Central Bank clamped down on vehicle financing business with higher loan-to-value ratios, the licensed finance companies stand to feel the brunt as leases accounted for a larger share of their growth in recent times.
ICRA Lanka Limited this April revised Vallibel Finance’s rating to BBB with a Stable outlook from BBB- with Stable outlook but cautioned the outlook might be revised to negative in case of weakening asset quality or significant deterioration in profitability and capitalization.