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ICRA Lanka expects NBFIs to reduce over coming year

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Under the sector consolidation roadmap of the CBSL, there were a number of mergers and acquisitions (M & A) in the NBFI. Capital levels among NBFIs improved on account of shrinking loan portfolio and contraction of some high-risk products. With credit still recovering, NBFIs had to absorb some revenue losses at the expense of liquidity. Asset quality deterioration is more acute among the NBFIs and relatively higher than banks due to inherent vulnerabilities of its clientele.

“However, there is a notable improvement in asset quality in 1Q 2021 before moderating in 2Q.

Wider NIMs have helped to improve the earnings of NBFIs. Contraction in the sector loan portfolio has improved earning indicators. Unlike the banks, NBFI earning profiles are less diversified making them susceptible to shocks such as the current pandemic. But the collections have normalized since 2020 4Q mainly due to the performance of the vehicle leasing sector. Leasing portfolios of many NBFIs are expanding amid the booming second hand vehicles market.”

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