Profitability (2022-2023) of The Licensed Financial Companies (LFCs) and Specialised Leasing Companies (SLCs)
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The Licensed Financial Companies (LFCs) and Specialised Leasing Companies (SLCs) faced significant challenges in 2022 due to the prevailing economic crisis. Despite this volatile backdrop, the LFCs and SLCs sector experienced moderate growth in terms of asset base. The growth primarily stemmed from an increase in loans and advances, which accounted for 74.43% of the total assets.
The sector's focus on leasing and hire purchase products, its core loan offerings, was severely impacted by prolonged restrictions on vehicle imports aimed at limiting foreign exchange outflows and the low purchasing power of households. However, there was a notable surge in pawning advances, which constituted 14.26% of the sector's assets at the end of December 2022, compared to 8.70% in the previous year.
The contractionary monetary policy presented serious challenges to the sector, resulting in a considerable increase in gross Stage 3 loans, indicating potential deterioration in credit quality. Nevertheless, the sector's core capital adequacy ratio (CAR) and total capital adequacy ratio showed improvement, reaching 20.58% and 22.02%, respectively, compared to 15.45% and 17.04% in the prior year. This was primarily driven by moderate growth in risk-weighted assets and a higher growth rate in capital.
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In terms of earnings and profits, the sector witnessed a decrease throughout the year. Net interest income for the financial year ending December 31, 2022, stood at LKR 115.21 billion, reflecting a 12.34% decrease compared to the previous year. The sector's total income amounted to LKR 315.58 billion, with total expenses reaching LKR 251.17 billion. The sector recorded a profit after tax of LKR 43.91 billion.
The sector maintained a satisfactory liquidity position, with Regulatory Liquid Assets to Total Assets ratio standing at 10.67%, a slight increase from 9.69% in December 2021.
The Central Bank continued its statutory examinations and continuous surveillance of LFCs, along with supervising the issuance of prudential regulations, granting regulatory approvals, and investigating companies engaging in finance business without authority.