LB Finance PLC, a licensed finance company that mainly engages in three-wheeler and two-wheeler leasing, saw its margins negatively affected during its March quarter as the rates on such leases climbed substantially.
Tightening of margins was clearly demonstrated by the interest expenses, which rose at the twice the rate of interest income.
As a result, the company saw its net profit for the quarter ended March 31, 2017 (4Q17) falling by 15 percent to a little over a billion rupees while the higher tax liability also dented the bottom line.
The financial services value-added tax rose sharply by 93 percent to Rs.349 million while the corporate income tax liability for the quarter rose by little under 60 percent to Rs.457 million from a year ago.
Meanwhile, for the year ended March 31, 2017, the company increased its net profit by 5.0 percent to Rs.3.9 billion, but the above factors weighed on the bottom line.
The return on equity also fell sharply to 33.93 percent from 40.52 percent a year ago.
According to the interim results released by the company, with an asset base of just under Rs.103 billion, its leasing and hire purchase book expanded by a strong Rs.10.5 billion for the 12 months to March 31, 2017, albeit down from Rs.11.7 billion granted during the previous year.
During the 4Q17, the company however disbursed Rs.3.0 billion in leases—Rs.12.0 billion if annualized—demonstrating the recent credit restrictions of vehicle leasing and higher interest rates almost having no impact on new lending.
The Central Bank has imposed higher down payments up to 75 percent for three-wheelers and 50 percent for motorcars in a targeted move to restrict the influx of motor vehicles into the country and also to curb credit flows into unproductive segments in the economy. These measures were expected to have a direct impact on companies such as LB Finance but the performance proved otherwise, at least during the 4Q17 quarter, although the vehicle imports fell substantially.
Meanwhile, the loans and receivables rose sharply to Rs.7.0 billion from Rs.4.3 billion last year.
Customer deposits rose by Rs.7.0 during the year, down from about Rs.8.0 billion last year. By end-March 31, 2017, Dhammika Perera in concert with Vallibel One PLC and Royal Ceramics Lanka PLC, held a 78.1 percent stake in LB Finance.
Meanwhile, SBI Ven Holdings Pte Ltd, part of Japan’s SBI Holdings, Inc., held a 1.155 percent stake being the fourth largest shareholder.