Under Pressure

Nov 05, 2007 (LBO) – Fitch Ratings says Sri Lanka’s finance companies are coming under stress from the current high interest rates and inflation, which increases risks especially in smaller finance companies. Updated/corrected, bailout numbers While most finance companies are well capitalized compared to their risk assets, 12 smaller firms out of 31 do not meet the minimum 200 million rupee capital floor set by the Central Bank, Fitch said in a new sector report.

Fitch says in the last few years finance companies have boosted their equity to asset ratios. In 1999-2001 Sri Lanka went through a severe economic crisis.

However the smaller companies in particular could be vulnerable. Fitch covers 80 percent of the sector by assets.

“From the asset quality point of view we see the ratio hovering around 11.5 to 12 percent which is double that of the banking system,” Fitch Ratings analyst, J Anandakumar told ETV’s Money Report business show.

“But then again given the risk profile that the finance companies take it is something that could be acceptable and it has declined compared to five or six percent earlier and now showing signs of increasing.”

However companies could face stresses wit