Finance companies suffer following the CB directive on vehicle leasing

By Bandula Sirimanna

Finance and Leasing companies have suffered a loss of 30 per cent in their vehicle leasing business in the past six weeks following the Central Bank (CB) directive to restrict the leasing facility to 70 per cent for vehicle purchases with effect from September 15, industry officials said.

The CB circular has driven away the prospective middle income buyers of vehicles and three wheeler buyers of low income groups, they pointed out.

Most of the finance and leasing companies recorded a loss of 60 per cent of their business and others suffered 30 per cent loss, Abans Finance Plc Managing Director Kithsiri Wanigasekera, former President of Finance Houses Association of Sri Lanka, disclosed.

He noted that limiting exposure of banks and financial institutions through the restriction leasing facility is a practice adopted the world-over to mitigate risk of default in loan repayment. Loans and advances include finance leases, hire purchases, loans and advances granted to purchase vehicles.A Finance Ministry official said restrictions on lending to import vehicles could not only control future credit growth of leasing and finance companies but also reduce loan defaults and limit a dollar outflow.

The cost of importing vehicles in the first seven months almost doubled to US $744.4 million this year, Central Bank data showed.

Mahinda Sarathchandra, President of the Vehicle Importers’ Association of Sri Lanka, told the Business Times that there was no significant impact on vehicle sales due to the change in leasing facility.A significant player in car financing in Sri Lanka are the leading car importers themselves through their own captive financing companies, he added.
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China biggest investor in Sri Lankan real estate

China, India and Hong Kong are the top three countries currently investing in the Sri Lankan real estate market, according to new research from online real estate platform, Lamudi Sri Lanka.In a media release, Lamudi Sri Lanka ranked the leading countries investing in Sri Lanka based on foreign direct investment (FDI), number of upcoming projects and buildings currently underway.

Data from the Central Bank of Sri Lanka indicates that a growing percentage of foreign direct investments have been flowing in from nations such as China, India, Singapore, Netherlands, the UK and the USA. As of 2014, over 42 percent of investments were focused on infrastructure, of which nearly 50 percent were driven into housing, property development, shopping and office complexes.

China
Data from the Central Bank of Sri Lanka confirms China is the biggest contributor to Sri Lanka’s FDI with over US$400 million in investment in 2014. Over the past five years, a high number of Sri Lanka’s infrastructure and real estate projects have been developed by China. Transportation developments financed by Chinese investments include the expressways from Colombo to Katunayake, and other major cities like Galle and Matara. 

In addition to luxury residential projects such as Avic Astoria, the long-awaited Colombo Port City, an impressive mixed development project, has been given the go-ahead by the new government. The project is slated to cost almost $1.4 billion, Lamudi said.

IndiaA growing number of private firms have shown interest in investing in Sri Lanka. From the ITC Colombo One in Galle Face and the Tata Housing project, to the Sandal Lands residential project, India is contributing a large amount to Sri Lanka’s total FDI. Indian development firms have also planned to construct 65,000 houses in Sri Lanka to assist in the resettlement of the families affected during the civil conflict.

Hong KongThe nation’s leading brand, Shangri-La, has invested in Sri Lanka in two areas: Colombo and Hambantota. The project in Colombo is a luxury mixed-use development, consisting of commercial spaces, a mall and residential units, while the project in Hambantota is focused on tourism; the construction of a luxurious hotel will accommodate the growing number of tourists every month.

Countries including Pakistan and the USA have been increasingly investing in major projects in the commercial, residential and tourism industry. Projects include the Destiny and the Hyatt Regency Hotel, the release said.
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100 % leasing facility for motor vehicles available till Dec 1

Did the Central Bank bungle or was it a bona fide error? Confusion reigned earlier this week over a direction given by the Central Bank (CB) on maximum loan facility available for leasing vehicles.

A CB issued a directive on September 14 titled “Finance Leasing Act Direction No 01 of 2015” to specialised leasing companies said from September 15th, leasing companies can grant loans or advances not exceeding 70 per cent of the value of such vehicle known in technical terms as “loan to value ratio (LTV)”.

Since then finance and leasing companies have been providing leases based on this circular (at up to 70 per cent).However on October 29, the CB issued another directive this time under the Finance Business Act (Finance Business Act Direction No 2 of 2015) saying that the circular issued dated September 14 on the LTV “shall come into force with effect from December 1, 2015”.

Confused finance companies and motor car dealers seeking clarification from the CB on a ‘somewhat’ contradictory circular, were then told by the CB that between October 29 and December 1, the earlier rates which according to the trade was unlimited credit (100 per cent or over) would be in force for the lease purchase of a vehicle.

It was pointed out by the trade that though Finance Minister Ravi Karunanayake, in a media release on October 29, has announced that the leasing facility has been increased to 90 per cent with immediate effect, that was never made formal through a CB directive. “This means, despite Government concerns of unlimited growth in motor vehicle imports (and draining of foreign exchange), a new one month window has been opened for more vehicles to be imported,” a trader said, adding however that there were other restrictions on opening LCs and a complex valuation method.

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SL listed hotels’ profits low despite rise in tourists

By Duruthu Edirimuni Chandrasekera

Public quoted hotels of some major conglomerates witnessed low profits in the past quarter, despite tourist arrivals to Sri Lanka being up by 9 per cent last month, analysts say.For the quarter ended 30 September 2015, John Keells Holdings (JKH) leisure sector saw a 23 per cent drop over the same period in the last financial year to Rs. 885 million. “…. the decline is mainly on account of the partial closure of Cinnamon Lakeside,” JKH Chairman Susantha Ratnayake said in his statement.

In the Sri Lankan segment, many coastal properties of large hoteliers continued to witness pressure on ‘Average Annual Returns (ARRs)’ which came from the higher industry inventory.One of the main reasons for this drop in profits for large hotels is the changes in trends in hotel bookings and a shift towards the informal hotel sector, analysts say. Purasisi Jinadasa, Chief Strategist Capital Alliance says that many tourists prefer to stay in unclassified hotels. “Short term rentals, bed and breakfast lodging are becoming popular,” he said.

Meanwhile, there has been a gradual shift in the source markets for the country’s tourism sector, with arrivals from traditional markets of Western Europe declining as a percentage of total arrivals whilst East Asia and East Europe have increased its market share, led by China. Analysts say that these tourists command needs and wants different to their Western counterparts. Also online hotel booking has changed the game for many small hotels. Data showed that the growth of Internet booking services has made it easier for small scale lodging providers to sell rooms to a larger market. Popular hotel reservation engine – bookings.com, lists over 3,500 properties offering accommodation in Sri Lanka compared to around 300 graded establishments in the country.

A top hotelier said that with such a facility, travellers can select from a great catalog of hotels and finally choose what they actually want. “This beats having to go to your vacation destination on a limb and then to scour the place for a hotel you like and also within your budget,” he opined. Small hotels also offer budget deals and nowadays many tourists want to experience the destination. “So many won’t stay for long or care about a hotel. It’s just a clean bed, bath and wi-fi that they want,” the hotelier added.

A sector analyst noted that while occupancies in Cinnamon Grand and Cinnamon Lakeside are falling (the closure of the latter for refurbishment is also a factor) the group’s 3-star Cinnamon Red hotel’s occupancy is high. “This is because the Cinnamon Red prices correspond to the quality it offers,” he said, pointing out that most city hotels are overpriced. Hayleys, in its 2014/2015 Annual Report has said that the hotel sector is challenged due to increase of graded room supply as several new domestic and international players expanding capacity.

“The increased supply of graded hotel rooms has led to severe price competition and margin erosion, particularly given the prevalent shift in spending patterns of tourists,” it says.
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“Progressive” tax on vehicles and luxury goods in 2016 Budget

By Bandula Sirimanna

Sri Lanka plans to unveil a “progressive” tax on vehicles, luxury and semi luxury goods, and imported food items in a bid to increase revenue and bridge the 2016 budget deficit.

The new tax rate on these luxury goods and vehicles is yet to be finalised, official sources said adding that it is likely to be around 5 per cent.

The 2016 Budget to be presented on November 20 is aimed at increasing tax to GDP ratio to a 14 to 15 per cent from 10.5 per cent at present.

VAT on vehicles at the import and selling point which was removed from the 2015 budget presented by the Rajapaksa regime and a new tax levied at the point of sale, will be re-introduced, a senior Treasury official said.

He said that the government is also considering the possibility of abolishing VAT on goods and services and bring it under the new “progressive tax” which will be levied on invoices.Motor traders said that the new policy will further increase the prices of vehicles and affect sales making it difficult for small motor dealers to survive.

Motor traders will recover the new tax money from buyers and the end result would be a vehicle price hike, Director of Lekhraj Automobiles (PVT) Ltd, Mahen L. Ganwani told the Business Times.He disclosed that small and medium scale importers of vehicles are under severe pressure with the new requirement of an annual licence fee of Rs.1.5 million introduced in the 2015 budget for brand new and used vehicle importers.

“This licence fee is unbearable for small and medium importers who cannot even pay heavy import duties at present.” he added.

VAT may be replaced by old BTT

The Ministry of Finance is considering replacing the Value Added Tax (VAT) with the old Business Turnover Tax (BTT) or Turnover Tax which was discontinued before 2000, sources said. 

“There’s a discussion going on currently on whether to replace VAT with BTT,” a Ministry source told the Business Times. The source said that the Ministry is concerned on issues pertaining to low revenue as many businesses evade VAT payments. “The revenue has dropped drastically over the years owing to VAT,” he said, adding that it was introduced to mitigate the cascading effect on domestic consumption goods and services.(Duruthu)

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SL urged to improve investment climate with transparency and good governance

Dramatic hike in new vehicle registrations in 2015

By Hiran H.Senewiratne

Sri Lanka requires to improve the investment climate with transparency and good governance for businesses to flourish. If not the economy will suffer immense fiscal pressures, Carmudi Sri Lanka Managing Director Firaz Markar said.

"The wider macro-economic factors, such as steady GDP growth, access to low cost credit, and a rising level of affluence within major demographics of Sri Lankan society, have combined to generate an unprecedented level of growth within the Sri Lankan automotive industry in the recent past , Markar told a media conference in Colombo on Thursday.

Sri Lanka’s pioneering online vehicle retailer, Carmudi.lk, released a ground-breaking new research white paper detailing the recent performance of the Sri Lankan automotive industry and an in-depth analysis into key trends in vehicle financing.

Among the key findings of the Carmudi white paper was the dramatic increase in registrations of new vehicles in 2015, which hit an all-time high of 4,990 vehicles in August 2015, as compared with the previous year, Markar said.

He said small cars, hybrids and full-electric vehicles were found to have displayed a rapid increase in popularity among Sri Lankan consumers in 2015.

"This is boosted by the volatility in state regulatory and import policy, which may be having a notable impact on demand as consumers look to secure the best possible deal on their purchases, he said.

Analyzing historical data, the newly released Carmudi.lk white paper, titled ‘Car Financing in Sri Lanka’, offers valuable insights into the overall performance of the vehicle retail industry.

Markar said there is today a considerable amount of debate with regard to the current levels of demand for vehicles in Sri Lanka and regulations are needed to effectively cope with such demand in a manner that is beneficial to all stakeholders.

"In that context, the release of this report is a timely development that we hope will shed some light on the current dynamics in Sri Lanka’s automotive industry and hopefully contribute towards the formation of an effective discussion on regulatory policy and other salient issues that are informed by hard facts, he said.

Markar noted that potential changes to vehicle taxation policies and a reversal on downward interest rate momentum could tip the balance of vehicle financing in favour of an alternate model where consumers may be forced to take on a larger proportion of the total cost of the vehicle, potentially signalling a shift in conditions for finance companies and banks.

"Recent events resulting in vehicle values going up have definitely affected the market. 

We see lower sales in vehicles since news broke of this increase. Interest rate changes are not expected to affect the market drastically due to it being a very nominal increase thus far.

"We will continue to monitor the market over the next month or so as dealers adopt a wait and see approach towards vehicle buyer intent, Markar added.www.island.lk

Nestlé Lanka announces ‘stable growth’ of 8.6% for Jan - Sept 2015

Nestlé Lanka PLC, a leading Nutrition, Health and Wellness Company in Sri Lanka, posted revenue of LKR 27.1 billion for the nine months period ending 30 September 2015 recording a growth of 8.6% vs previous year. The company reported a net profit of LKR 3.5 billion, a growth of 9.8% for the same period.

For Q3 2015, the company delivered revenue of LKR 8.8 billion and net profit of LKR 1.0 billion, indicating steady performance and enhanced investment behind its brands.

The third quarter of the year saw Nestlé Lanka reaffirm its position as a leading company in Sri Lanka, and was ranked amongst the top 15 business entities in Sri Lanka by the ‘Business Today TOP 25’, based on its financial performance during 2014-2015.

"The steady performance delivered by our company in the first 9 months of 2015, is a result of the trust our consumers repose on the quality and safety of our products. We once again reaffirmed our position as a leading and respected company, committed to enhancing the quality of life of the people of Sri Lanka, through our strong brands and rural development initiatives," said Shivani Hegde, Managing Director of Nestlé Lanka PLC.

As a leading Nutrition, Health and Wellness provider, Nestlé Lanka continued its focus on encouraging physical activity and an active lifestyle, and offering specialized milk-based nutrition for different stages of life. Products like Milo ready to drink, Nestomalt malted food drink, Nespray growing up milks, and the recently launched Nespray Nutri Up ready to drink, promote the goodness of locally procured Sri Lankan milk fortified with nutrients like Iron and Vitamins, leveraging Nestlé’s global expertise in nutrition. This was supported with the company’s continued commitment towards developing the Dairy Industry, as the largest private sector collector of local fresh milk in Sri Lanka.

The company also rolled out a large multi-brand wellness initiative, ‘Choose Wellness Choose Nestlé’, offering consumers a range of wellness solutions to promote a healthy and balanced lifestyle. The campaign also incorporates the Nestlé ‘Choose Wellness’ van that is travelling island-wide, providing free nutrition counselling and health checks to consumers. (Nestlé Lanka)

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