NBFI sector to incur substantial losses in FY-21 - First Capital | Daily News

NBFI sector to incur substantial losses in FY-21 - First Capital

The  Non-bank financial institution (NBFI) sector may record substantial  losses and display the weakest performance in the decade for FY21E says  First Capital in their “All Doom & Gloom for NBFIs” report.

The report predicts that the sector ROE is expected to decline to -15% for FY21E.

It  also says that the NBFI Sector requires raising Rs. 20 billion capital  by 2021E to stay alive. In total NBFI industry has to raise nearly Rs  11.1 billion in 2020E to comply with the core capital requirement.

The report however adds that ‘Big cap’ Finance companies in the sector may benefit amid the comfortable capital levels.

“All  Doom & Gloom for NBFIs” report points out that the sector has also  been affected by the slower than-expected economic growth in Sri Lanka.  “In line with the declining GDP growth, private credit reached 4% in  2019 while NBFI credit turned negative at -3%.”

NBFI  sector had also started to feel the pressure of NPLs since 2018, but  after having the full impact of the COVID19 as NBFI sector NPL spiked to  14.14% from 11.4%

NBFI  sector profitability also plunged to a 5 year low as the targeted SME  clientele struggled amid the crippling Tortoise economy spinning NBFI  credit growth to negative.

Due to these factors the market share of NBFIs staggers at 9% for the last 3 years, but dipped over the six year Period.

Due  to lacklustre growth in the sector, NBFIs were seen settling the bank  borrowings while heavily depending on deposits for fund mobilization.

Funding  profiles of Sri Lanka’s finance companies have been largely  characterized by limited diversity, with deposits dominating the funding  profile by 66% as of FY20. NBFI  Sector borrowings plunge to 34% from 44% in FY17 amid the surge in  liquidity in the system and lack of credit growth. However  comparatively, larger players have settled their debt at a much rapid  pace

With  restriction on vehicle imports, motor registrations may halve to a  17-Yr low in 2020E. “We expect vehicle registrations in 2020E to record  half of the last year amount while also being the lowest figure since  2003 and being subdued in 2021 as well.”

The  Government decided to temporarily  ban vehicle imports for at least a  year to survive a possible forex crisis  as average vehicle imports  constitute nearly USD 800 million (4% of total imports) for the previous  13 years. Registered  vehicle prices have shot up and as a result, competition is  intensifying in the Leasing segment in the NBFI sector due to attractive  rates by Banks.

“Despite  the expected private credit recovery of 12% in 2021E and 2022E, we  expect NBFI credit growth to be subdued at -5% in 2021E and partially  recover to 6% in 2022E.”