Re: NBFI Sector

[Hybrid]

The Leasing Companies have had their hay days.
That's over now unless the rules are changed to manage same. Earlier it was mostly Motor cycles and three wheelers that were on lease. That segment is very saturated and business very lean. NPL % for these are increasing.

Most companies do not provide car loans. Instead it is on a lease to the employees. Some companies pay only the lease amount as a fixed payout and no maintenance, fuel and repairs, licences and insurance excluded.

that's why you see a jump in the car registrations. Maruti in the lead. 1.4 Mio. for the car.

With free floating USD things will hurt the Leasing companies.

[Future123Active Member]

May  be  but   when  will   forex  stablise  ,sri  lanka  has  gloomy  picture,,   exports  going  down,,,so  we need  long  term  plan,,not  just  patch  work

Too late my friend. Today US$ selling rate is almost Rs. 143. Rupee will further depreciate and the cost of living and inflation will go up to unexpected levels. Where are the economists and doctors? Why they are silent?

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Present regime failing to attract investors. When the markets around the world going up CSE going down. This shows the investors are not confident about the government policies. The government has not made a single statement to attract the investors.
In India it's other way round. Finance minister and PM Modi continuously make appeals for the investors and they make policies to encourage investors and businesses. Unfortunately it's not happening here rather PM in the parliament criticizing blue chips like JKH and other prominent businesses and investors. Who will invest in SL? The existing investors also will be scared and run away from SL.

[First Guy]

Even if recent changes were not done, there was a limit to how many vehicles could be accommodated, isn't it?

Future direction is electric cars is what I see. Nissan Leaf could be the most popular with its price point and cheaper.

When we see positive developments, we see the actual positive and buy. But when we see something that is negative, at least in the short term, why do we find it hard to accept?

As Hybrid said, leasing companies have had their days, it does not mean that this is it but growth will surely be hampered. Yes they will maintain the EPS for some time with existing leases and might even show a good growth in September quarter. But beyond?

[yellow knifeTop contributor]

FG

Once I worked as a sales rep during my under grad ... I was selling Grohe Tap fittings to upper end. There were cetain tap fitting models that cost equal to an average car's value . Grohe guarantee for tap fittings is 20 years and we used to say that's life long.

My thinking was the market will soon saturate and there wont be any further demand for these luxury taps then..But the same crowd who purchased so expensive taps( meant for life long ) used to remove and refurbish after two three years...

That is Sri Lanka..... so I dont feel the market saturation for vehicles as long as new models arrive...

[First Guy]

True YK. Whenever taxes were raised in the past, sales dipped only temporarily. More for alcohol and tobacco and for cars as well. No matter how much people complain, they are going to buy cars. But now they will settle for a lower option and some will defer their purchase. So in the short term, there will be an impact. 70% ceiling means, 70-80% of earlier business value on car compared to before for most finance companies. So even with the same amount of cars, lease amount will drop. Now we are expecting taxes to be increased as well?

Some companies have not grown their lease portfolio and top line too much during the recent past. EPS increase was shown by adjustments in impairments and provisions.

[yellow knifeTop contributor]

fully agree with FG

Even when bakery item prices go up by Rs 5 many temporarily give up buying next get back to the old quantity ..

There should be temporary drop...in vehicle registration...

If you refer PLC.N0000 or UML.N0000 you will find that vehicle registration was substantially up since 2011

[slstockVeteran]

I think many maybe concerned too much ( over blowing the issue).

[yellow knifeTop contributor]

Yes

The purpose of this thread was to talk about NBFIs in general.. The 70% issue was talked since it was within the limits of the thread..

Agree with SLS we may stop talking about the 70% issue now and move into other areas of NBFI

Thanx SLS

[slstockVeteran]

For all those you are looking at this very negatively,

Let me give a few keywords to get you thinking on the other side

Was this 70% needed at this time?
think $ rate
think congestion
think import balance

think NPL
think dynamic companies
think default
think lease durations

think small NBFI

[yellow knifeTop contributor]

Regarding Lending rate and FD rate

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another from
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පුද්ගලික බැංකු හා මුල්‍ය සමාගම්වල තැන්පතු මුදල් හා ණය ගැනීම් වෙනුවෙන් වන පොලී මුදල ලබන මාසයේ සිට 1-3% අතර ප‍්‍රමාණයකින් වැඩිරීමට නියමිත බව වාර්තා වෙයි.
මේ සඳහා වන උපදෙස් ශ‍්‍රී ලංකා මහ බැංකුව විසින් නිකුත් කිරීමට නියති යයිද බැංකු ක්‍ෂෙත‍්‍රයේ ආරංචි මාර්ග පවසයි.
මේ තත්වය මත තම පොලී අනුපාතද ඉහල දැමීමට රාජ්‍ය බැංකු හා මුල්‍ය සමාගම්වලට සිදුවනු ඇත.
රුපියල අවප‍්‍රමාණය වීම, විදේහ සංචිත පහල යෑම ආචායම් වියදම් පරතරය ඉහල යාම ආදී කාරණා නිසා මෙම තත්වය මතුවෙදැයිද කියැවෙයි.

[yellow knifeTop contributor]

RESEARCH COMMENT

In our view this would restrict growth in loan book in many financial institutions whilst the rising of overall NPL ratio’s on such institutions are expected to be arrest (Banking sector NPL’s around 4.2% whilst for Leasing and Finance companies NPL’s stood at 6.9% in 2014). Moreover, we believe this measure would curb the rising motor vehicle imports which saw a growth rate of 97% YoY in 1H2015. Further this is expected to reduce the pressure on currency to certain extent where the Rupee has depreciated to c.6% YTD. Concurrently this would ease the pressure on the Balance of Payment (BOP) where it recorded a deficit of USD791.7 mn in 1H2015


Sept 15, 2015 (LBO) – Sri Lanka’s Central Bank has issued a directive to commercial banks, speciaized banks and financial institutions to reduce the loan to value (LTV) ratio to 70 percent in respect of loans granted for purchases or utilisation of motor vehicles.
“The Central Bank of Sri Lanka has observed with concern the recent growth of exposure of banks and financial institutions to certain categories of lending, including lending in respect of motor vehicles,” it said in a statement.
“As such, with a view to pre-empt this trend which may develop into a system-wide risk to the financial sector, the Monetary Board of the Central Bank of Sri Lanka decided to impose a maximum Loan to Value (LTV) ratio of 70 per cent in respect of loans and advances granted for the purpose of purchase or utilisation of motor vehicles by banks and financial institutions supervised by the Central Bank in terms of the relevant legal and supervisory provisions.”
The imposition of such LTV ratios is a key regulatory practice adopted globally to address such macro concerns on lending activitiesas and when such concerns are raised, the central bank said.
The directive goes in to effect Tuesday.
“Loans and advances shall include finance leases, hire purchase facilities and other loans and advances granted for the purpose of purchase or utilisation of motor vehicles,” the statement said.
The value of the motor vehicle should be the market value obtained from a professional valuer at the time of granting loans and advances, as per the prevailing practice, the central bank added in the directive.
A lower loan to value ratio, from the 85-90 percent that firms were giving out, could reduce demand for vehicles which has increased several fold in the last year.
Commenting on the directive, Murtaza Jafferjee, the chief executive of JB Securities said: “Loss given default (LGD) is the loss that a financial service company faces in case of default. Normally for leases the figure is around 40 percent based on the current industry LTVs of around 85-90 percent.”
“Now that max LTVs have been mandated at 70 percent LGDs will come down significantly probably to 10 percent. This would significantly derisk vehicle financing, interest rates on leases will come down due to credit spread compression and the NBFIs operating in the subprime market will be pushed out,” he said.
“You might also see a shadow banking market operating that is outside the regulators purview that will offer higher LTVs,” he added.

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[Future123Active Member]

The 70% lease requirement is a temporary measure. Best time to buy companies like VFIN, COCR and CDB which has over reacted to the situation.

Limiting vehicle leasing rate: Temporary measure to reduce new vehicles - See more at: [You must be registered and logged in to see this link.]

[slstockVeteran]

Again I revive the below post and ask for answers . Think out of the box and deeper.


Below may have big sense. Many people does not see right now and suddenly turned pessimistic about the sector when 70% rule came.


ps : Based on the below post , I got only one person thinking and answered with a partial but good one via PM ( from well know person here.)

For all those you are looking at this very negatively,

Let me give a few keywords to get you thinking on the other side

Was this 70% needed at this time?
think $ rate
think congestion
think import balance

think NPL
think dynamic companies
think default
think lease durations

think small NBFI

[First Guy]

Sorry I'm not able to think at your level yet.

As i said I feel now it will be at a more "normalised" level.

Now that the leased asset value will also rise somewhat (existing). So in case of a default (if interest rates rise) companies might be able to fetch higher prices at auctions. Question, do they give the excess amount to the borrower?

Even now there are many vehicles at auctions. Maybe they can make a good opportunity out of these seized vehicles.

[yellow knifeTop contributor]

Fg

Most of the seized vehicles are auctioned with leasing facility again.. once again when 70% margin applies..so the demand will come down with less affordability

[Future123Active Member]

Fg

Most of the seized vehicles are auctioned with leasing facility again.. once again when 70% margin applies..so the demand will come down with less affordability

What I heard from friends working in some finance companies was they are coming up with some new ideas to bridge the 30% difference. Eg: the customer can contribute 15% and the company would offer a personal loan for the balance 15% to bridge the difference. Of course the customers should be able to produce payslips and sources of regular income for this.

The three wheeler segment was hardly hit by this rule. I heard CDB does majority of leasing for three wheelers. Not sure about the accuracy.

Our Sri Lankans are too clever and they will find out new ways to come out any problem.

[slstockVeteran]

There are some negatives on this 70% move, but I wanted people think deeper .

Good that some comments show that they started to think deeper as I expected
( whether it will happen or not is another thing)


On the hand, I saw some ( in cyberspace) thinking too deep on BLI to make it wonder company now.
Seems COCR craze has died these days.

Sorry I'm not able to think at your level yet.

As i said I feel now it will be at a more "normalised" level.

Now that the leased asset value will also rise somewhat (existing). So in case of a default (if interest rates rise) companies might be able to fetch higher prices at auctions. Question, do they give the excess amount to the borrower?

Even now there are many vehicles at auctions. Maybe they can make a good opportunity out of these seized vehicles.

[yellow knifeTop contributor]

The maximum loan to value ratio fro vehicle leasing  increased from 70% to 90% from Monday

[Future123Active Member]

Ravi k is slowly learning. Well done. We can see finance companies rocketing.

[slstockVeteran]

Aren't you learning too not to panic unnecessarily

Please look at the comment I made in this thread itself (when I asked everyone
to look deeper giving some hints).

How many worried and said finance sector was over when this issue came.

Now what?

It is not Raki K learnt his mistakes . He probably knew before that too.
I though this was move by CB ( no Ravi K )

Anyway some do what they want to do

1) a patch solutions thinking it will solve a bigger problem ( without analysing the root)
2) for personal benefit
3) stubbornness not to accept facts or hastiness
4) wrong advice

What made this change mainly was as far as I can gather

1) peer pressure ( from finance companies, groups and others) to protest against this 70% rule showing the bigger issues )
2) the effect it will have if they did not change it .

Think for example : would it better to give 90% leasing at XX%
than 70% lease at XX% + 25% personal loan at XX+3%


Now do you"ll see one of the depths I was wanting you guys to see before?
It falls under the hint " think dynamic companies"

Again I revive the below post and ask for answers . Think out of the box and deeper.


Below may have big sense. Many people does not see right now and suddenly turned pessimistic about the sector when 70% rule came.


ps : Based on the below post , I got only one person thinking and answered with a partial but good one via PM ( from well know person here.)

For all those you are looking at this very negatively,

Let me give a few keywords to get you thinking on the other side

Was this 70% needed at this time?
think $ rate
think congestion
think import balance

think NPL
think dynamic companies
think default
think lease durations

think small NBFI

Anyway, I feel this 90% is too mu ch. Maybe they should have made it 80%.
Still there are other broader issues to look at.

I mean I should be happy as it is good news to my LFIN and CDB holding etc but..
there are deeper issues to study in economy, industry etc . Money is not everything.

[Market loverTop contributor]

Haha Future is a happy man now Future looks bright now isn't it.

[HAL9000Top contributor]

Haha Future is a happy man now Future looks bright now isn't it.

It seems like the whole Saga is master minded by Future 123 and his best friend RK, to collect all finance stocks at low

[Market loverTop contributor]

Haha Future is a happy man now Future looks bright now isn't it.

It seems like the whole Saga is master minded by Future 123 and his best friend RK, to collect all finance stocks at  low

[Future123Active Member]

The 70% lease requirement is a temporary measure. Best time to buy companies like VFIN, COCR and CDB which has over reacted to the situation.

Limiting vehicle leasing rate: Temporary measure to reduce new vehicles - See more at: [You must be registered and logged in to see this link.]

I was very sure that the 70% rule was temporary one. I thought the government would have it for at least 2 months and relax it to 80% and after one month 90%.

Wonder why they had do revise within 15 days? Was there any deal done between Ravi K, Mahendran and DP, CDB, COCR and other finance company owners??????

Instead taking quantitative controls to control the vehicle population the government should take qualitative controls.
1) Decent public transport especially during peak hours. This will make a lot of commuters to use public transport.
2) Improve school transport services may be partnership with schools
3) Metro rail
4) Tube services (This is a long term strategy and too costly for SL). Should seek support from EU, US and Japan
5) Out of total vehicle registration more than 60% is three wheelers and motor bikes. The government should seriously think of limiting these especially three wheelers who usually don't respect the traffic rules. Three wheelers are a curse for our country.

Now it seems Ravi K my friend learning from his mistakes. He taught me a tough lesson in Feb with the mini budget.

It was disastrous for me but I was determined to be successful. I moved out from my comfort zone and started thinking out of the box and changed my focus. I think I'm doing ok changing my way of seeing things. When the whole market lost in September I managed to have a super September. Thanks to Ravi K for putting me in such a situation.

Another good move by Ravi K:

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[yellow knifeTop contributor]

Still 90% ceiling is valid

The statement made by Ravi K of reversing to 70% still not valid as he is not the minister responsible for banks and finance...

So much of Scientific base of Ministerial Portfolios