Finance Outlook

Mar 22, 2012 (LBO) - Sri Lanka's licensed finance companies have revived but asset quality is expected to be pressured with rising interest rates and inflationary pressures, RAM Ratings said in a report on the sector. But in future, RAM Ratings said the industry’s asset quality is expected to be pressured, testing the strength of underwriting and collection procedures against the backdrop of rising interest rates and inflationary pressures.

"The industry’s margins are expected to thin amid the anticipated escalation in funding costs given the environment of increasing interest rates.

"Although LFCs are expected to seek alternative funding options to fuel their rapid loan growth, we envisage deposits to gain prominence in an environment of rising interest rates."

The rating agency said that despite the expected growth in deposits, it presumes the LD ratio to remain high through the medium term a level it views with concern.

The industry’s corporate governance and transparency have improved after the listing of most LFCs’ shares on the Colombo Stock Exchange which requires compliance with guidelines on corporate governance as well as more frequent quarterly financial reporting requiremen