Finance Houses and Leasing Companies to appeal to CB Relax vehicle leasing directive

By Ishara Gamage

Ceylon Finance Today: The Finance Houses Association of Sri Lanka and the Leasing Association of Sri Lanka have planned to request the Central Bank of Sri Lanka to relax its recently imposed vehicle loans and leases directive as it could restrict growth in their leasing and vehicle lending books, relevant Associations members told Ceylon FT yesterday."We are drafting separate letters to send the Governor of Central Bank by explaining our grievances and suggestions", they said. They believe that except vans and luxury vehicles all other vehicles could be omitted from this directive."Re-registered vehicles, two wheelers, three wheelers and commercial vehicles can be easily omitted from this directive; they have minimum effects for foreign currency outflows, an official of the Finance Houses Association," added. He also emphasized that limiting commercial vehicles such as agricultural vehicles, SME vehicles and buses could adversely affect the country's economic activities.

Leasing is the core business of the Sri Lanka's finance companies and it account for nearly 75% of its business. Leasing is represented around 5-10% of the banking sector business.In an offer to scale down vehicle imports weighing on the country's Balance of Payment (BOP) the Central Bank sent directives to all banks and finance companies imposing restrictions on loans and leases to vehicles.According to the condition, all banks and finance companies are now only allowed to provide a lease of up to 70% of the vehicle value.The directive came into effect from midnight of September 14.Meanwhile, JB Securities releasing its August vehicle registration review said," Contrary to popular belief balance of payment crises that this country faces from time to time are not due to vehicle imports but due to a combination of monetary policy (not allowing a free floating exchange rate and/or not revising interest rates) and fiscal policy (public servant salary increases, not collecting enough taxes, under recovery of petroleum taxes, etc.). Thus the solution to the BOP crisis is to address the fundamental issues rather than meddle with vehicle taxes.

Brand new car registrations were 4,990 units in August lower than 5,773 units recorded in July but significantly higher than 788 units recorded 12 months ago. Small cars (<1,000 cc) accounted for 94% share of brand new registrations. Maruti's accounted for 4,075 units down from 5,024 units recorded in July but significantly higher than 380 units recorded 12 months ago. Maruti financing share was 61.2% lower than 68.4% recorded in July which may explain the slow down. Micro Panda accounted for 402 units up from 238 units in July.