Larger finance firms should profit from booming leasing and higher purchase sales, according to a Capital Alliance PLC research report.
The report points out that low levels of overall credit and sustained economic growth create a conducive environment for credit growth backed by increasing levels of income, growth in vehicle ownership and re-financing. It says that all these are likely to accelerate growth in the leasing and hire purchase (HP) market.
“With 86% of the leasing and HP market, Non Bank Finance Companies (meaning leasing, hire purchase, etc) are poised for explosive growth,” it says, adding that size is not the only criteria for picking winners of these firms, but there are strong reasons to believe that “bigger is better” over the next few years.
The report says that leasing and hire purchase market is poised to grow at a 25% Compound Annual Growth Rate (CAGR) through 2018. “Reduced import duties and lower interest rates led to an 800, 000 increase in vehicles (in sales) since 2009,” the report points out noting that from June 2010, the excise tax on motor vehicles was reduced by approximately 50% and that by April 2011, this duty on petrol vehicles was increased by 38-43%. The hybrid cars were assigned a duty between 8-100%.
The report further says that Sri Lanka’s current GDP per capita suggests accelerated vehicle ownership growth if past trends hold true. “Sri Lankans should expect 7.2 million vehicles by 2018, (which is an increase of 81%),” it says, adding that many of the new vehicle sales will be upgrades from motorcycles to motor cars as was the case in Malaysia. Therefore at a minimum Sri Lanka can expect to see two million new vehicles and the leasing and HP market grow by 3.5 times by 2018.
It is estimated that households that can afford cars would double from 20% to 40% if more than 6% real GDP growth can be maintained through 2018. The report says that NBFCs have specialist customer and product knowledge, enabling them to outshine banks in the niche and that the auto leases and HP agreements comprise 70% of total NBFC loans and advances.
Analysts say that the leasing industry, which has been growing at a rapid pace, is expecting a total value of the industry’s portfolio to reach Rs 280 billion by year end. |
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