Mismatch in asset liability in Lanka’s leasing industry - Expert

Ramani KANGARAARACHCHI

Sri Lanka’s leasing industry has to target new assets and move on to industrial plant and machinery over a period of time, International Trainer and Consultant Vinod Kothari said. Speaking at the inaugural leasing symposium of Sri Lanka held in Colombo on Friday, he said a growing economy needs investment in infrastructure.

“Many of the leasing companies in the region have done so well with infrastructure assets and with environment being so similar, it is not difficult to forge joint ventures with leasing companies from neighbouring countries. India has very successful experience with infrastructure assets,” he said.

The Sri Lankan leasing industry is purely financial leasing which is merely another form of funding and 95 percent of the volumes are on vehicle leasing based on consumerism. The developmental capital expenditure comes in the form of infrastructure assets, IT equipment, plant and machinery and office equipment. The industry has to grow and mature itself to provide another way of acquiring assets, not just another way of financing assets,” Kothari said.

Referring to the problems faced by the Sri Lanka’s leasing industry he said there is a mismatch in asset liability. The industry depends almost on vehicle leasing and although it is largely a supportive regime, comprehensive regulatory policy is missing.

Also a true securitization is absent in the system as securitization window is practically same as bank borrowing. VAT issues and lack of clarity on taxation are other problems.

Kothari said the industry needs key policy support to overcome these issues. A well defined regulatory distinction between leases and hire purchase, financial transactions and financial leases and operating leases is very important. Also respecting the ownership rights of lessors and end of ownership interest in case of default is required. There should be a parity of regulation by Central Bank on leasing and other financial intermediaries.

“Clarity on VAT issues also has to be done. As Sri Lanka is passing a great volatile time proper protection is very necessary to meet the challenges,” he said.