Treasury to restrict commercial banks’ exposure to leasing
Sri Lanka’s commercial banks ‘ exposure to leasing activities will be restricted to business over Rs. 5 million revising the 2016 budget proposal to completely take leasing out of the banking portfolio, official sources disclosed. According to the budget proposal the ban on commercial banks from engaging in leasing was scheduled to be implemented from June 1, but a decision has been taken at a top level meeting attended by senior officials of the Treasury and the Central Bank to restrict the commercial banks exposure to leasing without banning it altogether, a top CB official said. He said that this decision was taken by considering representations made by bank employees unions and leasing companies.
“The proposal is good for Sri Lankan banks because it will limit their exposure to these higher-risk loans,” he disclosed. However he noted that the relevant gazette notification and the circular containing operational guidelines are yet to be issued by the Finance Ministry. Banking sector analysts argued that such restrictions would slow down the growth in banks significantly while bottom-lines will also be negatively impacted as these loans fetch relatively higher margins as opposed to other loans. “We believe this 2016 budget proposal would be a serious challenge not only to banks, but to the consumer as well.
Leasing; motor leasing in particular is a preferred way to drive loan book growth, due to attractive yields, asset backed, active second hand market and good asset quality as domestic banks refrain providing facilities to the subprime market,” said Bartleet Religare Securities in a note on the budget. Analysts said that leasing made up around 5 per cent of the loan book of the five largest banks engaged in consumer lending. Therefore withdrawal of the ban on leasing by banks was a pragmatic decision, they pointed out. Handing over leasing totally to finance companies is a risk for consumers as some of them have weaker asset quality and also face liquidity problems, the CB official said. Finance companies can handle leasing anything below Rs. 5 million and this sector would also not be affected, he pointed.