The asset quality of Sri Lanka’s non-banking financial institution (NBFI) sector worsened in 2020, with the sector’s non-performing loans (NPLs) ratio reaching 13 percent at the end of the year, following its short-lived recovery in the third quarter of the year, according to the Central Bank. Due to the effects of the pandemic, the sector’s NPLs peaked to 14.14 percent in the second quarter of last year.
However, it improved to 12.79 percent at the end of the third quarter, before falling again in the final quarter of the year.
As NBIFs lend to segments, which could become easily vulnerable to economic shocks and are often ignored by the banking sector, NBIFs have higher NPL ratios compared to the banking sector.
The asset quality of the sector started to worsen since mid-2018. The sector’s NPLs, which remained at 6.91 percent in the second quarter of 2018, doubled to 12.79 percent in the second of quarter of last year, after undergoing several economic shocks during the period.
With several number of NBFIs faced with capital issues, the Central Bank implemented a consolidation programme for the sector, aiming to cut the number of players in the sector by half.
Central Bank Deputy Governor T.M.J.Y.P. Fernando told Mirror Business that around 10 NBFIs are coming under the programme.
“It is being implemented. We are expecting to receive their plans by this March or April. They will have to disclose their plans before the deadline given by the CB, which falls on the end of March,” she said.
The sector, which compromises of 42 finance companies and four specialised leasing firms, accounts for around 8 percent of the assets of the country’s financial system. (NF)