Rationalising the leasing business of banks by june 1 2016, will see banks margins affected as leasing carries better interest yield than core lending. But the move may introduce loan products similar to leasing in the medium term, analysts say.NTB has the highest exposure of 24.6 per cent in leasing according to data this year, [...]

The Sunday Times Sri Lanka

Banks’ bottomlines hurt by budget but boost for loan growth

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Rationalising the leasing business of banks by june 1 2016, will see banks margins affected as leasing carries better interest yield than core lending. But the move may introduce loan products similar to leasing in the medium term, analysts say.NTB has the highest exposure of 24.6 per cent in leasing according to data this year, followed by Union Bank (9.2 per cent) and Pan Asia (9.1 per cent) while the average leasing exposure of banks stands at 8.3 per cent. “This has an impact on the earnings potential of banks going forward,” an analyst said.

DFCC has 8.6 per cent exposure in leasing with both Sampath and NDB showing 8.2 per cent. Seylan has 8.1 per cent followed by HNB while Commercial Bank has the lowest at 6.9 per cent. Analysts said that loan products which will facilitate vehicle purchasing will be introduced by the banks and this will see loan growth. “It will be similar to housing loans,” another analyst said.

Meanwhile banking analysts said that the government’s initiative to implement credit guarantee schemes from 2016 onwards with an allocation of Rs. 500 million to selected financial institutions to recover 75 per cent of the principal amount in case of default and obtaining US$ 100 million from ADB to support lending to SMEs will increase the focus of banks and financial institutions towards SMEs.
“This is a positive development towards the SMEs which represent 80 per cent of the registered business.”

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