Sub Prime

Dec 13, 2010 (LBO) – Sri Lanka’s finance companies, the island’s sub-prime lenders, have returned to profits and strengthened capital, but bad loans were still high as the sector recovered from a downturn, a report by the regulator shows. Bad loans at registered finance companies rose to 11.7 percent of gross loans by June 2010, up from 10.2 percent in 2009.

In 2009 bad loans deteriorated sharply from 6.7 percent a year earlier. Capital adequacy plunged from 14.0 percent 9.8 percent. But by June 2010, capital adequacy rose to 10.4 percent.

Sri Lanka’s finance companies were the most badly hit from money printing and interest rate manipulation that began in 2004. The state suppressed interest rates to help deficit spending and fired a massive housing bubble, with inflation rising to 29.9 percent at one time.

But the Central Bank started tightening monetary policy from 2007 and bringing stability back slowly.

The housing bubble burst in 2008 amid a balance of payments crisis and a collapse on an unregistered financier in the Ceylinco group, triggered a run on weaker finance companies initially starting with Ceylinco group firms.

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