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RFC profits satisfactory

Registered Finance Company (RFC) loan books have expanded by a robust growth rate of 25.1 percent during the past five years up to end 2008.

Profitability of the RFC sector was satisfactory, while maintaining healthy prudential ratios. Capital adequacy was also well above the minimum regulatory requirement up to 2008, a senior official of the Central Bank's Non Bank Financial Institutions Supervision Department (NBFI) said.

However, the conduct of unauthorized players in the market pulled RFCs into a liquidity crisis resulting in weakened performances. Loan growth rate decreased sharply during last year on account of curtailed lending to face the liquidity crisis.

Performance of the RFC sector weakened due to declined loan growth and higher interest expenses, which had pushed up interest expenses during the year 2009.

He said the sector reported a before tax loss for 2009. Nevertheless the industry's profitability is mixed with a loss incurred by the largest RFC (The Finance).

Although, the NBFI sector is small in the overall financial landscape, which accounts 5.3 percent of financial system assets as at end 2009, it is of systemic importance due to the large and widely dispersed number of depositors and small and medium sized enterprise (SME) market segment catered by the sector.

While the sectors are primarily engaged in vehicle financing, these industries support financial requirements of SMEs through other forms of asset-backed financing.

The sector was performing considerably well while contributing to the expansion of business activities of the country.

He said towards the end of the year the industry showed an increasing trend of the every aspect of the business and is expected to continue, consequent to decline in funding costs and the resultant benefit to net interest margin driven by the sharp reduction in interest rates.

Total assets, accommodations and borrowings of Special Leasing Companies (SLCs) sector increased steadily up to end 2008. However, accommodations recorded a decline and assets did not show a growth.

Capital Funds of SLCs have increased to Rs 20.5 billion by the end December 2009 compared to Rs 18.5 billion in 2008. Borrowings of SLCs decreased during last year from Rs 77 billion in 2008 to Rs 73 billion in 2009, the official said.

There is a slight increase in net interest income to interest income ratio in the financial year 2009. This was due mainly to the low cost of borrowings in second half of 2009.

An Increasing trend in Return on Assets (RoA) and the return on equity observed. Except eight SLCs, other SLCs recorded profits during the year ended in 31.12.2009, he said.


RFCs RFLEs

No. of Companies 35 21

Total Assets (Rs Mn) 185,407 111,899

Total Deposits (Rs Mn) 119,797 N/A

Total Borrowings (Rs Mn) 19,200 73,852

Total Advances (Rs Mn) 116,199 79,951

Capital Funds (Rs Mn) 20,634 20,540

% Share of Total Financial

Assets ofthe Country 3.30% 2.00%

 

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