Mercantile Investments crosses Rs.100bn asset milestone

From left: Chief Financial Officer Deva Anthony and Chief Operating Officer Laksanda Gunawardena PIC BY NISAL BADUGE

• Eyes Rs.175bn medium-term target through digital drive

By Nishel Fernando

Mercantile Investments and Finance PLC (MI) has announced a historic achievement in its six-decade journey, crossing the Rs.100 billion total asset milestone while recording a profit after tax of Rs.504 million for the first half of the financial year. 

The company made this announcement during a media roundtable held in Colombo.

This performance, reflecting a 35 percent year-on-year growth in profitability, comes amidst a challenging economic landscape, where the company has successfully calibrated its strategy to balance aggressive growth with superior asset quality.

The company’s financial trajectory has been underpinned by a 24 percent increase in net interest income, which rose to Rs.3.4 billion. This growth was propelled by the strategic repricing of the asset portfolio and a disciplined reduction in funding costs, allowing the company to maintain healthy margins despite the market volatility.

A standout feature of the company’s recent performance is its ability to maintain the asset quality significantly above the industry average. While the non-banking financial institution (NBFI) sector’s non-performing loan (NPL) ratio hovers around 8 percent, MI has maintained its NPL ratio at 4.65 percent. The management attributes this resilience to a rigorous, decentralised credit evaluation process and a relationship-based recovery mechanism, which has resulted in a 50 percent reduction in the NPL stock compared to the previous year.

“Even though we have grown our book significantly, our infrastructure and credit quality continue to improve. We are very conscious about the customer segments we have selected and our quality. We are not getting into high-risk exposures without adequate security,” stated Chief Operating Officer Laksanda Gunawardena, commenting on the company’s credit discipline.

Looking beyond the traditional brick-and-mortar expansion, the company is pivoting towards a technology-led future. As part of its medium-term roadmap, MI is accelerating its digital transformation to establish a fully digital lending ecosystem within the next three years. The company is migrating its operations to a new core banking system to facilitate this shift, with the ultimate goal of enabling the customers to complete the entire loan origination and approval process via an online app.

Gunawardena, elaborating on this technological shift said, “What we are looking at is to create a loan process entirely through an online app. As a first step, we will be introducing ‘virtual branches’ as opposed to physical branches. This empowers our marketing officers to ensure processes can be completed at the customer’s doorstep, improving efficiency and reach.”

The company has also outlined ambitious future targets underpinned by a three-year strategic plan. The management expressed confidence in sustaining the current momentum, targeting a loan book expansion of between Rs.125 billion and Rs.150 billion. Consequently, the total asset base is projected to exceed Rs.175 billion in the medium term.

“We have come to a tier of Rs.100 billion assets and very few companies in the NBFI sector are at that level. To maintain that status, we are very set in terms of our governance structures and financial numbers and we are ready to move on to the next phase beyond the 100 billion mark,” said Chief Financial Officer Deva Anthony.

This growth strategy is supported by a robust capital base, with the shareholder funds standing at approximately Rs.15.4 billion. The company’s capital adequacy ratios remain well above the regulatory requirements, providing the necessary buffer to pursue these ambitious expansion targets while navigating future economic variable.

Secured Transaction Registry expected to go live in 2 months

The long-awaited Secured Transaction Registry (STR) is expected to be fully operational within the next one-and-a-half to two months, a development Mercantile Investments and Finance PLC said would resolve critical credit risk issues related to movable assets.

Speaking on the initiative, Mercantile Investments and Finance Chief Operating Officer Laksanda Gunawardena revealed that discussions with the Credit Information Bureau (CRIB) indicated the system is currently undergoing final technical modifications. 

He noted that the company views the STR “very positively”, as it addresses systemic risks, where the same asset is often pledged to multiple financial institutions, leading to recovery challenges.

“This is something most companies have been suffering from. They (CRIB) have given us an assurance that they will try to put this in place within the next one-and-a-half to two months’ time period. This will come in very handy for organisations like ours because financing equipment and mobile machinery was previously difficult to track. The new system will give priority, visibility and transparency,” Gunawardena said.

The STR is a central database established under Secured Transactions Act No. 17 of 2024. Its primary objective is to allow movable assets—such as machinery, inventory, crops and accounts receivable—to be used as valid collateral for loans.

Historically, Sri Lanka’s banking system has heavily favoured immovable assets like land and buildings as security. According to the Central Bank data, while approximately 78 percent of the capital stock of the small and medium enterprises (SMEs) globally comprises movable assets, financial institutions have been reluctant to accept them, due to the lack of a central registry to verify the ownership and existing claims.

The STR, maintained by the CRIB under the supervision of the newly established Secured Transactions Registration Authority, fills this gap. It functions as a public notice system, where the creditors can register their security interests in movable property. This establishes a clear priority of claims based on the date of registration, effectively preventing the “double collateralisation” issue highlighted by market participants.

For the non-banking financial institution sector, which is deeply integrated with the rural and SME economy, the STR is expected to reduce credit risk premiums and encourage lending to productive sectors that were previously deemed unbankable, due to a lack of traditional collateral. (NF)