Jan 11, 2009 (LBO) – Sri Lanka’s finance company profits would pick up in 2010 as deposit rates falls, helping offset some credit losses, but asset quality may remain until the economy strengthens, Fitch Ratings has said. A recent sharp fall in bank deposit and lending rates had now started to spread to the finance company sector.
“The agency expects the consequent decline in funding costs and the resultant benefit to net interest margin, to offset the high credit costs,” Fitch said in a statement on central bank registered finance and leasing companies in Sri Lanka.
“However Fitch notes that the recovery of the industry’s current weak asset quality could lag the positive macroeconomic trends seen at present, underlining the severity of the recent economic downturn and the higherrisk nature of the industry’s client base.”
Liquidity problems at finance companies and leasing firms have “eased somewhat” since a Fitch comment in September 2008 which then intensified after the collapse of several unregulated financial firms.
During the period finance companies had to give higher risk premiums compared to commercial banks.