By Ishara Gamage
Ceylon Finance Today: Sri Lankan bankers seek their regulator Central Bank of Sri Lanka's (CBSL's) assistance to remove several budget proposals which may negatively impact their future performances.
In a letter to CBSL Governor, Sri Lanka Banks' Association (SLBA) said that the cessation of banks to engage in leasing business from 01 June 2016 is a highly unfair and impractical.
"We as bankers can cater to almost all segments of business and customers. We collectively have more than a 3,000 islandwide branch network. Whereas finance companies have very limited scope. They cannot lease large ships, aircraft and also they collectively have only 1,000 branches," SLBA Secretary General Upali de Silva, said.
Ceylon Finance Today: Sri Lankan bankers seek their regulator Central Bank of Sri Lanka's (CBSL's) assistance to remove several budget proposals which may negatively impact their future performances.
In a letter to CBSL Governor, Sri Lanka Banks' Association (SLBA) said that the cessation of banks to engage in leasing business from 01 June 2016 is a highly unfair and impractical.
"We as bankers can cater to almost all segments of business and customers. We collectively have more than a 3,000 islandwide branch network. Whereas finance companies have very limited scope. They cannot lease large ships, aircraft and also they collectively have only 1,000 branches," SLBA Secretary General Upali de Silva, said.
Speaking to "Ceylon FT", he stressed that nearly half of the banking sector leases cater to the country's small and medium sector businesses. Further, banks can provide low cost leases compared to finance companies.
The letter also said that giving a 100% guarantee for finance companies deposits is also a highly questionable and risky affair.
The letter also said that giving a 100% guarantee for finance companies deposits is also a highly questionable and risky affair.
"Giving 100% guarantee for finance companies may loosen management/ownership awareness of core business, because they know somehow the government will bail out their deposits" the Association warned.
But CBSL officials said that depending on the probability of finance company failures, prudent regulatory mechanisms will provide the necessary background for the government to give such 100% guarantees to finance companies.
"It seems to be wrong to give the guarantee of 100% to finance company deposits, whereas, CBSL is offering only up to Rs 200,000 to Rs 250,000 as compensation in the event of failure of any bank," de Silva however said.
"It seems to be wrong to give the guarantee of 100% to finance company deposits, whereas, CBSL is offering only up to Rs 200,000 to Rs 250,000 as compensation in the event of failure of any bank," de Silva however said.
Only National Savings Bank is being given a 100% guarantee in Sri Lanka by the Treasury currently. No other banks are given such a guarantee.
Analysts earlier told "Ceylon FT" that Sri Lankan bankers may find alternative ways to overcome their leasing restrictions which was proposed in the 2016 budget, analysts said. "Instead of giving direct leases, they can utilize similar services as vehicle or personal loans."
Speaking to Ceylon FT, Fitch Rating Country Head Maninda Wickramasinghe said that the budget proposal may dampen banks' profits, but it is good for the leasing industry.
"We are now studying the real outcome of these banks' leasing restrictions, most leasing companies have now become finance companies", he said.
Speaking to Ceylon FT, Fitch Rating Country Head Maninda Wickramasinghe said that the budget proposal may dampen banks' profits, but it is good for the leasing industry.
"We are now studying the real outcome of these banks' leasing restrictions, most leasing companies have now become finance companies", he said.
Finance Ministry Secretary Dr.R.H.S. Samaratunga said that main purpose of that proposal was to develop the leasing industry as a separate industry.
"Like other industries, we must give incentives to the leasing industry to grow. What I feel is due to competition among its members, customers can apply for low rate leases," he said.
"Like other industries, we must give incentives to the leasing industry to grow. What I feel is due to competition among its members, customers can apply for low rate leases," he said.
Samaratunga said most Sri Lankan banks use their low cost funds to give lucrative leases which give them large profit margins.
"We have to stop this culture and let banks focus on their core business", he said.
When asked whether banks' subsidiaries are allowed to do lease business, he said that they will issue a final circular after proper evaluation of the industry.
When asked whether banks' subsidiaries are allowed to do lease business, he said that they will issue a final circular after proper evaluation of the industry.
Budget 2016 proposed that banks should cease engaging in leasing business from 01 June 2016.
Analysts at Bartleet Religare Securities said, "We believe this proposal would be a serious challenge not only to banks, but to the consumer as well.
Motor leasing in particular is a preferred way to drive loan book growth due to (1) attractive yields, (2) asset backed, (3) active second hand market (4) good asset quality as domestic banks refrain from providing facilities to the subprime market.
Motor leasing in particular is a preferred way to drive loan book growth due to (1) attractive yields, (2) asset backed, (3) active second hand market (4) good asset quality as domestic banks refrain from providing facilities to the subprime market.
"We believe almost all banks would see a serious volume impact from this policy decision as the sector's median exposure to leasing stood at 8% by end September 2015. NTB, in particular would need a change in strategic direction as the bank's loan book concentration to leasing is as high as 24%," analysts said.
They noted that finance companies would be the clear winners/beneficiaries of this proposal, growing in both volumes and margins, although from a consumer's point of view, this will restrict access to low leasing advance rates, as banks generally quote low rates due to their access to low cost funds.
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