The Registered Finance Company (RFC) sector grew by 9% to end-September 2010 and has an asset base of Rs. 202 billion. Further, 40% of this 36-company (formal) sector is controlled by two of its largest players, Central Finance and The Finance Company. Additionally, 65% of total assets, equal to asset base of Rs. 131 billion, was due to loans and advances, with loans against real estate dropping by 8% to Rs. 7 billion as at end-September 2010.
This information is contained in an "Introductory Document" submitted by Kandy-based Commercial Credit Ltd (CCL) requesting the listing of 218,074,365 ordinary voting shares on the Diri Savi board of the Colombo Stock Exchange, which is in keeping with recent Central Bank of Sri Lanka (CBSL) regulations for financial institutions, and especially RFCs, after allegations of fraud at Ceylinco Group companies.
Started in 1982, CCL first specialised in agricultural lending in over 50% of its portfolio, with 16 locations spread across traditional agricultural centres such as Anuradhapura, Dehiattakandiya, etc. In recent times, the company has expanded to 36 locations and over a 100,000 customers island-wide with new micro finance, education loan and quick loan offerings.
The company also revealed that its deposits and lending had grown to Rs. 2.7 billion and Rs. 2.6 billion, respectively, while its Cost to Income Ratio, improved to 41% by end-December 2010. Also, Loans to Deposits Ratio was at 96% as of end September 2010. Also indicated, its lending base had been diversified to cover agriculture, corporate finance, hire purchase, leasing, etc, with no one class of product being more than 30% of the total portfolio. A measure it indicated would mitigate risk as a result of overexposure.
CCL's future plans include expanding to 25 branches and 50 service locations within the next three years, introducing pawning as a key product and make land sales a major bottom line performance contributor, but only up to 5% of total asset base.
Meanwhile also revealed about the formal finance sector was that; "Public Deposits continued to be the major source of funding. Deposits of RFCs accounted for 68% of total funds of RFC. Deposit liabilities increased by 9%, for six months ended, to Rs. 137 billion in September 2010 compared to 28% growth in the last year. The declining growth in deposits could be attributed to the lower interest rates. The other two main sources of funding by RFC were borrowings and capital funds, which accounted for 13% and 10%, respectively of total resources.
Loans and advances accelerated due to the higher demand for hire purchases and leasing as interest rates declined drastically. Credit for investment activities, including loans (13.25%), hire purchase (25.35%), leasing including motor vehicles (20.32%) and real estate investments including housing and property development (3.54%) are the sectors to which the RFC have given most credit. These four sectors account for about 62.45% of the total assets base."
The sector showed an "after tax loss of Rs. 1,382 million as at March 2010, compared with the after tax profit of Rs. 311 million in 2008. Nevertheless, the sector’s profitability has been largely influenced by the significant losses incurred by a few RFC. However, it should be noted that the sector is now performing well with reported six month after tax profit of Rs. 990 million as at the end of September 2010. [Net Interest Margin or NIM of the sector has remained at stable level during five years with 2009/10 NIMs at 6.09%. Even though, the sector reported positive NIMs for the period ended March 2010, net profit shows a negative figure due to higher non-interest expenses and loan loss provisions incurred by the sector."