June 2013

LICENSED FINANCE COMPANY SECTOR UPDATE

Published by :

RAM Ratings (Lanka) Limited

(P B - 1636)

No. 11, Melbourne Avenue, Colombo 4 Sri Lanka

T F E W

+94 112 553089 +94 112 503551 +94 112 553090 ram@ram.com.lk www.ram.com.lk

JUNE 2013

LFC SECTOR OF SRI LANKA

OVERVIEW
The Licensed Finance Company (LFC) sector remained a small segment of Sri Lankas financial institutions industry, accounting for 5.90% of its assets as at end-December 2012 (end-December 2011: 4.60%). The notable increase in its share of the industry was largely due to the issuance of an LFC license to the largest specialised leasing company (SLC) in the country. Three other SLCs had also obtained the LFC license during the year; we note that this has been the general trend of late given the funding constraints and higher costs of operating as an SLC. The LFC sector assets excluding these SLCs accounted for only 4.92% of the financial institution industrys assets as at end-December 2012. Following a robust 44.31% year-on-year (y-o-y) increase in assets in FYE 31 March 2012 ("FY Mar 2012), the industrys growth slowed to an 1 annualised 32.75% in 9M FY Mar 2013 amid a slowdown in credit growth. As at end-December 2012, the sector comprised 47 players operating with 8442 3 branches across the island (end-December 2011: 40 players with 532 branches). Credit growth slowed in 9M FY Mar 2013 due to a drop in demand for vehicle financing loans as import duties spiked during the period while lending rates and inflation remained high, thereby eroding disposable income levels. As such, many players sought to diversify their lending portfolios, thus channelling funds to micro-credit loans and pawn brokering. Going forward, the easing of interest rates and inflationary pressures are expected to result in a gradual uptick in demand for credit. While vehicle financing is expected to remain the main growth driver, other credit assets such as pawning and microfinance are expected to gain in prominence within the loan mix.
1
2 3

Analytical Contacts:

Christy Sugirtharatnam Financial Analyst (94)11 2503551 christy@ram.com.lk

Senila Jawfer Senior Financial Analyst (94) 11 2553089 senila@ram.com.lk

Excluding the migrated entities Of this, Peoples Leasing Finance PLC (PLC) accounted for 35 branches (Source: PLC Annual Report 2012) Central Bank of Sri Lanka (CBSL) Annual Report 2011/12

Published by :

RAM Ratings (Lanka) Limited

(P B - 1636)

No. 11, Melbourne Avenue, Colombo 4 Sri Lanka

T F E W

+94 112 553089 +94 112 503551 +94 112 553090 ram@ram.com.lk www.ram.com.lk

The LFC sectors asset quality had weakened in the 9M ended FY Mar 2013 as envisaged. Unfavourable macroeconomic conditions and the seasoning of loans subsequent to the aggressive loan growth witnessed the previous year had resulted in a deterioration of credit quality. As LFCs cater to a social stratum whose risk profile is higher than that of a banks clientele, the impact of the unfavourable macroeconomic environment had been magnified in the sector. In the short term, delinquencies are expected to increase as loans have yet to season and the sector continues to be challenged to maintain credit quality; overall asset quality, therefore, is expected to remain at current levels. In the longer term, however, we expect asset quality to be supported by better macroeconomic conditions, resulting in reduced incidence of non-performing loans (NPLs) and improved recoveries. The sector demonstrated only a modest improvement in performance due to slower credit growth in 9M FY Mar 2013. Overall margins had narrowed as funding costs increased amid a faster repricing of shorter-tenured deposits in a high-interest rate scenario. However, the sectors yields stood higher than that of banks, thereby resulting in wider margins. Increased lending to lower-income earners in the form of micro-finance loans had also given rise to lucrative margins. Notably, a strengthening of core income was witnessed as the bulk of funding was channelled to interest-earning credit assets. This is viewed positively in light of the volatility of returns from non-core assets such as real estate and equity investments. Going forward, while easing interest rates are expected to result in broader margins, the benefits are expected to be offset to some extent by a probable increase in credit costs as new NPLs trickle in with the seasoning of loans. While customer deposits continued to be the sectors chief funding source, the funding mix increasingly tilted towards borrowings. Given the removal of withholding tax (WHT) on listed debentures and the benefits associated with funding via long-term debt such as the easing of inherent maturity mismatches, we expect a further tilt towards corporate debt. Moreover, the interest rate caps on medium-term deposits ranging from 2-3 years effective January 2013 may result in LFCs increasingly relying on longer-term borrowings. However, the funding mix is expected to remain dominated by deposits. Meanwhile, liquidity levels are expected to remain stable amid the gradual uptick in credit demand. Elsewhere, with almost all LFCs listed, increased transparency has resulted in better corporate governance across the industry. While many LFCs are still closely held, regulatory requirements such as regular Central Bank of Sri Lanka (CBSL) reporting, onsite audits by the CBSL, and increased regulatory criteria imposed on the senior management of LFCs have contributed towards improved corporate governance. Given the recent adoption of International Financial Reporting Standards (IFRS), we opine that financial statements will better reflect the underlying risks faced by LFCs. The most significant change in this regard is the move towards provisioning based on incurred loss, from time-based provisioning previously. While the shift will increase transparency in reporting in the medium term, many players are yet to gear themselves up for the recruitment of skilled personnel and system changes.

SSET QUALITY:

Asset composition largely unchanged

In comparison to the robust asset growth of 54.81% in fiscal 2012, the sector expanded at a moderate 41.15% in 9M FY Mar 2013 (9M FY Mar 2012: 44.31%). The enlarged asset base in 9M FY Mar 2013 mainly resulted from Sri Lankas largest leasing company securing an LFC licence during the period; the SLC had an asset base of LKR 79.83 billion as at end-December 2012, accounting for 15.51% of total LFC industry assets. Meanwhile, 3 other leasing companies had also contributed to the expansion of industry assets when they became LFCs. Excluding these 4 SLCs (migrated SLCs), industry growth came up to a slower 32.75%. The slower growth of the industrys asset base was largely underpinned by weaker credit growth amidst challenging macroeconomic conditions. Credit assets only grew 31.36% in 9M FY Mar 2013 (excluding migrated SLCs) compared to 56.72% in 9M FY Mar 2012. Nonetheless, the industrys asset composition remained relatively unchanged , with credit assets dominating the asset mix (Chart 1). Moreover as expected, investments in land and property declined to a meagre 1.86% of total assets, as many players disposed of real estate investments, converting them into credit assets. We also note that many LFCs reduced their stakes in equity investments in favour of interest-yielding assets, given the downturn in the equity market.

Chart 1: LFC industry asset mix

100%
90% 80% 70% 60%

Asset Composition %

50%
40% 30% 20% 10%

0%
FY Mar 2009 Property, plant & equipment Other assets Investments in land and property 8.34% 9.10% 8.60% 63.37% 0.52% FY Mar 2010 7.32% 10.71% 8.46% 61.40% 0.77% FY Mar 2011 6.08% 8.37% 6.11% 68.46% 0.87% FY Mar 2012 4.55% 6.52% 2.81% 76.71% 0.77%

9M FY Dec 2013 3.76% 7.51% 1.86% 77.88% 0.64%

Net loans & advances

Investment securities Cash and treasury assets
Sources: CBSL, RAM Ratings Lanka

10.07%

11.35%

10.11%

8.63%

8.35%

Considerable slowdown in loan growth in 9M FY Mar 2013

As opposed to loan growth of 69.35% in FY Mar 2012, the industrys credit assets increased 43.30% in 9M FY Mar 2013. However, excluding the migrated SLCs, growth came up to a modest 14.24% in 9M FY Mar 2013, compared to the aggressive growth posted in the preceding 2 years. Vehicle financing which accounted for the bulk of credit assets was the worst-hit segment amidst challenging macroeconomic conditions and high import duties. Despite the easing of Sri Lankas monetary policy, the impact of lower interest rates on credit demand is only expected to be seen towards the latter part of FY Mar 2014, until which time loan growth is envisaged to be relatively modest.

Drop in demand for vehicle financing

Loan growth in FY Mar 2012 stemmed mainly from vehicle financing, driven by 3-wheelers, motorcycles and small cars (under 1000 cc), in view of the low import duties prevalent at the time. However, demand for vehicle financing dropped subsequent to an increase in duties in the small-vehicle category and the depreciation of the rupee, which resulted in more expensive imported vehicles in 9M FY Mar 2013. However, the industrys credit asset mix had tilted towards vehicle financing; this is mainly due to the inclusion of the assets of migrated SLCs which made up 24.58% of vehicle-financing credit assets as at end-December 2012. Excluding the migrated SLCs, vehicle-financing grew only 14.61% in the 9M FY Mar 2013. With the weaker demand for vehicle financing, we note that many players had focused on other loan products such as micro-financing and pawning (Chart 2).

Chart 2: LFC industrys credit asset mix

100%

Credit Asset Composition %

90% 80% 70% 60%

50%
40% 30% 20% 10% 0% FY Mar 2009 FY Mar 2010 28.60% 36.13% 9.10% 7.12% 3.72% 15.34% FY Mar 2011 32.69% 32.69% 6.24% 8.86% 2.23% 17.28% FY Mar 2012 39.25% 27.67% 4.53% 7.76% 1.44% 19.36% 9M FY Dec 2013 42.82% 27.67% 3.30% 7.44% 1.23% 17.55%

Leasing Hire purchase Term loans Pawning

31.14% 37.28% 12.16% 5.01% 2.67% 11.73%

Related company loans

Other loans

Sources: CBSL, RAM Ratings Lanka

Chart 3: New-vehicle registration growth

New Vehicle registration growth %

500%
400% 300% 200% 100% 0% -100% Motor Cars & dual purpose vehicles Three Wheelers Motor Cycles

2008
-16.92% 4.03%

2009
-69.51% -16.61%

2010
393.95% 129.23%

2011
162.78% 61.62%

2012
-24.57% -28.62%

-14.55%
-23.74% 4.60%

-13.16%
-41.41% -41.34%

51.31%
44.01% 38.28%

23.63%
25.10% 23.86%

-24.10%
-17.22% -8.95%

Lorries
Others
Source: Department of Motor Traffic

Continued focus on pawn brokering

As expected, pawning remained a key growth area for the LFC sector in 9M FY Mar 2013, owing to high gold prices during the period as well as the convenience associated with this form of borrowing. As such, pawning advances grew at a robust 51.09% (annualised) (FY Mar 2012: 45.48%), accounting for 18.05% of total loan growth, excluding migrant SLCs. However, since banks too offer homogenous pawning services at marginally lower rates, LFCs compete by offering attractive loan-to-value ratios (LTV), thereby allowing a higher interest charge to compensate for the greater degree of risk. That said, we note that LFCs are exposed to fluctuations in the price of gold and are likely to make losses in the event of a price drop, given high LTV ratios of approximately 75%-85% much higher than that of banks. On the other hand, the pawn loan segment which once registered lucrative margins has seen a narrowing trend amid keen competition. Additionally, the segment faces risks such as the acceptance of dud articles, albeit minimal. However, we note that the sentimental value attached to jewellery has afforded good collection rates in the past. Elsewhere, we note that pawn brokering has, to a certain extent, helped LFC players keep their NPLs in check, as it is subject to minimal regulation under CBSL guidelines due to the fact that it is fully collateralised against gold.

Growing focus on SME/ micro-financing

Following declining demand for vehicle financing, LFCs have increasingly focused on micro-financing, catering to low-income, rural customers and is generally uncollateralised in nature. This further exacerbates the risk profile of the LFC sector, which is inherently exposed to a high degree of credit risk compared to banks. Despite the risks associated with micro-financing, many LFC players view it as a lucrative loan product which yields higher 5

margins, compensating for the high risk exposure. That said, we understand that the extensive branch reach of players, close customer relationships, and continuous collection and monitoring play a crucial role in preserving loan quality in micro-financing. In our experience, the group lending approach is widely adopted among many players, which has resulted in better collections and low delinquency rates thus far. As such, we opine that loan quality in this segment would depend largely on the competence of its personnel, as successful implementation relies on constant interaction with the borrower. Higher interest rates are charged for micro-financing loans to compensate for the high credit risk of the target market. Consequently, the LFC sector benefited from broader margins due to increased exposure to this segment. Still considered an under-served segment, micro-financing presents much potential for growth.

Loan seasoning results in weaker gross NPL ratio

The overall gross NPL ratio of the industry clocked in at 5.79% as at end-December 2012, remaining relatively 4 unchanged from 5.91% as at end-March 2012. However, excluding the migrated SLCs , the ratio stood at 6.79% as at end-December 2012, due to an influx of NPLs as seasoning took effect amid a non-conducive macroeconomic environment in 9M FY Mar 2013. As LFCs cater to a social stratum whose risk profile is higher than of a banks clientele, the impact of unfavourable macroeconomic conditions was magnified in the sector. Going forward, in the short to medium term, delinquencies are expected to increase as loans have yet to season. However, given easing interest rates and lower inflation as forecasted by the CBSL, improved credit quality could be expected in a better macroeconomic environment, resulting in fewer new non-performing loans (NPLs) and improved recoveries.

ROFITABILITY:

Moderate growth in NII

Following moderate growth in the LFC sector, the overall financial institutions industry recorded a Net Interest Income (NII) of LKR 30.29 billion in 9M FY Mar 2013 (9M FY Mar 2011: LKR 18.27 billion). However, excluding the migrated SLCs, NII recorded a moderate annualised growth of 29.12% from FY Mar 2012 as the growth in interest expenses outpaced the growth in interest income. The interest income grew a modest 46.15% (annualised) while interest expenses spiked 62.15%, reflecting the re-pricing of short-term deposits amidst increasing interest rates.

This was largely due to PLCs delinquency rate of approximately 1.19%.

NIMs pressured
Subsequent to broader NIMs in FY Mar 2012 as a result of increased investments in high-yielding credit assets at the time, the industrys NIM clocked in at 9.18% in 9M FY Mar 2013. Excluding the migrant SLCs, the margin narrowed to 8.48% compared to 8.74% in FY Mar 2012. While yields improved following increased exposure to lucrative products such as pawn loans, small-ticket loans and micro-finance loans, funding costs grew at a faster pace owing to a rising interest-rate scenario, where deposits repriced faster than credit assets, which resulted in narrower NIMs. Going forward, the sectors NIMs are expected to benefit from lower interest rates coupled with increased investments in higher-yielding assets in the immediate near term. however the margins are expected to stabilise in the medium term.

Reduced reliance on non-core income

Overall reliance on non-interest income reduced in 9M FY Mar 2013 as most players channelled funds from investments in equity and real estate to interest-yielding assets. This shift is viewed favourably as the sector has reduced its dependence on non-core income which is exposed to equity market fluctuations and real-estate market sentiment.

Weaker cost to income levels

Despite improving gross income levels, the sectors overall cost to income ratio weakened to 59.99% in 9M FY Mar 2013 (FY Mar 2012: 54.66%), while the ratio, excluding the migrant SLCs, stood at 60.99%. While overall costs had deteriorated only slightly, given minimal branch expansion in 9M ended FY Mar 2013, the ratio weakened amid a contraction in gross income following slower credit growth. Moreover, we note that the slowdown in credit growth had also resulted in the new branches of most players experiencing protracted breakeven periods. The cost-to-income ratio varies widely across the sector, depending on the expansion strategies of each player. However, in the short to medium term until credit growth picks up, profitability is expected to be pressured by the sectors high cost profile.

UNDING & LIQUIDITY :

Customer deposits continued to be the sectors chief source of funding, accounting for 57.45% of its funding composition as at end-December 2012 (Chart 5). However, the sector increased its reliance on long-term borrowings in FY Mar 2012, given the slower growth of customer deposits compared to credit assets and to address inherent asset-liability maturity mismatches. Borrowings surged 151.01% in FY Mar 2012, charting a further growth of 66.73% in 9M FY Mar 2013. However, migrated SLCs accounted for 68.60% of growth in 9M FY Mar 2013, given that borrowings are the chief source of funding of SLCs. Customer deposits rose 27.06% and 28.33%, respectively in FY Mar 2012 and 9M FY Mar 2013. Increased reliance on borrowing to finance credit assets resulted in the industrys loans to deposits ratio deteriorating to 157.79% as at end-December 2012 (endMarch 2012: 141.31%). Going forward, the industry is expected to increase its dependence on long-term borrowings, given the removal of WHT in respect of listed debentures, and the medium-term deposit interestrate cap introduced by the CBSL, with effect from (w.e.f) 1 January 2013.

Chart 5: Funding mix

100% 90%

Funding Composition %

80% 70% 60% 50% 40% 30%

20%
10% 0% FY Mar 2009 Customer deposits Borrowings Shareholders' funds 66.52% 17.28% 16.20% FY Mar 2010 75.44% 11.48% 13.08% FY Mar 2011 72.63% 14.89% 12.47% FY Mar 2012 59.92% 24.36% 15.72% 9M FY Dec 2013 57.45% 23.48% 19.07%

Sources: CBSL, RAM Ratings Lanka

Chart 6: Deposit growth of LFCs vs banks

Growth of Savings and Time Deposits (Year-on-Year)

40 35 30

Per cent

25 20 15

10
5 0

Apr-10

Apr-11

Dec-09

Dec-10

Dec-11

Apr-12

Jun-11

Aug-10

Aug-11

LCBs

LSBs

LFCs

Overall

Source: CBSL LCB: Licensed Commercial Bank; LSB: Licensed Specialised Bank;

Aug-12

Dec-12

Oct-10

Oct-11

Feb-10

Feb-11

Feb-12

Oct-12

Jun-10

Jun-12

Reduced maturity mismatches

As a result of the Government of Sri Lankas move to withhold tax on interest income from debt securities listed on the Colombo Stock Exchange on or after 1 January 2013, in the national budget for fiscal 2013, we anticipate demand for borrowings via listed debentures to rise over the medium term. The move to secure long-term funding is expected to ease inherent maturity mismatches in the industry. On the other hand, we also note that such borrowings will result in large bullet repayments, requiring greater emphasis on effective treasury management.

Improving liquidity position given slower loan growth

The industrys statutory liquid asset ratio improved to 15.22% as at end -December 2012 from 14.08% as at end-March 2012 (end-March 2011: 13.05%) amid slower credit growth. However, going forward, the liquidity ratio is expected to remain stable in light of the anticipated gradual uptick in credit demand.

APITALISATION:

The sectors capitalisation levels improved in FY Mar 2012 owing to several strategic capital injections to previously distressed LFCs. As at end-December 2012, capital funds grew only 12.49%, excluding the migrant entities, in 9M FY Mar 2013 (52.24% including migrant entities), given minimal capital injections and a lower internal capital-generation ratio of 19.64% during the period. The CBSL has revised the minimal core capital requirement of LFCs from LKR 300 million to LKR 400 million, w.e.f 1 January 2015. Although larger players in the industry have already met the requirement, we understand that smaller LFCs would be challenged to raise additional equity. Overall, we note that most LFCs had, by end-March 2012, adhered to the tier 1 and tier 2 Risk Weighted Capital Adequacy Ratio (RWCAR) levels of 5.00% and 10.00%, respectively, stipulated by the CBSL; some players reported a moderation in their RWCARs amid aggressive loan growth. Going forward, given an increased focus on 5 raising long term debt, the industrys tier-2 capitalisation levels could strengthen in the medium term. As demand for credit is expected to increase with a lag effect following rate cuts, capitalisation levels are not expected to be challenged in the near term.

Borrowings will be included in tier-2 capital only if they are subordinated and adhere to specific requirements of the CBSL

ORPORATE GOVERNANCE & REPORTING FRAMEWORK

Following the listing of most LFCs by end-December 2012, the sectors corporate governance framework is has strengthened, with greater transparency in reporting financial statements and other related disclosures. Larger players were seen to focus more on risk management-related activities. However, we note that players owned by conglomerates could be exposed to group-related risks. On another note, LFCs adopted the Sri Lanka Financial Reporting Standards, w.e.f 1 January 2012, as opposed to the previous Sri Lankan Accounting standards. The most significant change is the move towards provisioning based incurred loss, from time-based provisioning previously. The new reporting standards are expected to better reflect the underlying risk profile of financial institutions, as they identify impairment based on assetspecific risk factors as opposed to the blanket time-based method used previously. However, the shift requires significant changes to the Information Technology (IT) systems of the companies in order to generate past probabilities of default in each risk pool and the resultant loss given default. Further, the move places great emphasis on personnel involved in identifying impaired loans, given that credit staff are now required to identify impaired loans a function carried out mainly by the finance division in the past. In this regard, many industry players are still to have systems and personnel in place to fully benefit from the adoption of IFRS.

ATING CONSIDERATIONS:

As loan seasoning took effect subsequent to aggressive loan growth in FY Mar 2012, most players witnessed a weakening of credit quality. This has continued to weigh down the sector in 9M ended FY Mar 2013 and LFCs continue to be challenged to maintain credit quality in the short to medium term. As such, overall asset quality is expected to remain at current levels. In the longer term, however, we expect asset quality to be supported by improving macroeconomic conditions, resulting in fewer incidences of NPLs and improved recoveries. Growth in credit assets had upheld the sectors overall performance in fiscal 2012 and in 9M FY Mar 2013. Anticipated broader margins amid easing interest rates, while auguring well for the sector, are expected to be offset, to some extent, by the probable increase in credit costs as new NPLs trickle in. All in all, an overall gradual improvement in performance is expected in the short to medium term, resulting in improved capitalisation levels. While funding mix is expected to remain relatively unchanged, however, an increasing tilt towards corporate debt is expected as LFCs seek funding from listed debentures. Meanwhile, liquidity levels are expected to remain at current levels with the gradual uptick in demand for credit expected going forward. All said, we opine that the outlook on the long-term financial institution ratings of LFCs rated by RAM Ratings Lanka will be stable in 2013, as reflected by the stable outlook on the long-term ratings of most entities within our portfolio.

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Chart 7: LFCs rated by RAM Ratings Lanka

Source: RAM Ratings Lanka

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Financial Summary LFC Industry

BALANCE SHEET (Rs. Million) ASSETS Cash & Money At Call Deposits & Placements With Financial Institutions Securities Purchased Under Resale Agreements Securities Dealing Securities Investment Securities Gross Loans & Advances Interest-In-Suspense General Loan Loss Reserves Specific Loan Loss Reserves Net Loans & Advances Investments in Subsidiaries/Associates Investment Land and Properties Other Assets Property, Plant and Equipment TOTAL ASSETS LIABILITIES Customer Deposits Savings Fixed NIDs Interbank Deposits Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Other Borrowing Subordinated Debt & Hybrid Capital Other Liabilities TOTAL LIABILITIES Paid-up Capital Minority Interest Share Premium & Other Reserves Statutory General Reserve Retained Profits/(Loss) Total Shareholders' Funds TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 2,401.89 95,114.18 763.57 0.00 1,529.97 0.00 25,283.64 242.74 13,606.94 138,942.93 5,961.12 0.00 14,018.13 2,432.84 1,521.22 23,933.31 162,876.24 3,568.00 121,187.56 829.46 0.00 2,752.83 0.00 19,055.75 50.00 15,435.40 162,879.00 8,211.34 0.00 15,460.72 2,774.99 (4,667.68) 21,779.38 184,658.38 6,123.58 148,873.60 840.80 0.00 4,405.78 0.00 31,807.84 150.00 16,659.30 208,860.90 16,338.61 0.00 14,834.79 4,537.55 (8,946.00) 26,764.95 235,625.85 6,401.91 190,767.79 843.52 0.00 6,389.95 0.00 4,854.85 248,515.55 746.67 0.00 9,383.47 0.00 129,305.79 4,915.08 38,085.69 435,807.10 47,514.68 0.00 25,923.70 6,026.78 (381.28) 79,083.87 514,890.97 7,304.33 847.03 108,986.39 1,947.76 1,516.24 2,305.77 103,216.62 1,323.14 14,004.97 13,503.09 13,576.52 162,876.24 13,253.30 1,413.81 122,798.43 2,665.55 3,083.42 3,676.30 113,373.16 2,046.75 15,617.96 17,735.10 13,518.98 184,658.38 15,863.55 2,048.02 172,656.24 2,731.95 3,499.94 5,110.48 161,313.87 2,517.50 14,404.33 17,206.17 14,315.43 235,625.85 16,132.00 2,810.52 292,391.85 3,842.88 2,474.85 6,253.02 279,821.10 1,848.76 10,267.90 21,951.84 16,583.23 364,774.76 21,354.24 3,314.02 421,863.67 9,330.38 2,209.00 9,347.34 400,976.95 5,365.14 9,586.89 33,288.05 19,371.64 514,890.97 3,261.22 5,839.31 0.00 4,252.02 3,447.30 0.00 5,406.84 2,550.14 0.00 7,028.26 8,331.15 0.00 11,256.12 10,377.93 0.00 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 30-Dec-12

77,764.78
2,739.50 27,920.61 312,828.05 30,114.53 0.00 20,536.04 4,701.71 (3,405.57) 51,946.71 364,774.76

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Financial Summary LFC Industry

INCOME STATEMENT (Rs. Million) Interest Income Less: Amortisation Of Premium/(Accretion Of Discount) Less: Net Interest Suspended Less: Interest Expense Net Interest Income Non-Interest Income Gross Income Personnel Expenses Other Non-Interest Expenses Loan Loss Provisions Share of results of Associated Companies Pre-Tax Profit Taxation Profit After Tax Extraordinary Items Prior Year Adjustments Minority Interests Transfer To Statutory Reserves Transfer To Other Reserves Dividend Retained Profit For The Year 31-Mar-09 31,465.39 0.00 0.00 22,429.97 9,035.42 4,019.45 13,054.87 3,529.56 6,774.10 1,445.47 0.00 1,305.74 994.19 311.55 0.00 0.00 0.00 0.00 0.00 0.00 311.55 31-Mar-10 33,850.13 0.00 0.00 23,307.64 10,542.49 3,026.26 13,568.75 4,156.14 7,153.71 2,132.72 0.00 126.18 1,509.06 (1,382.88) 0.00 0.00 0.00 0.00 0.00 0.00 (1,382.88) 31-Mar-11 37,209.36 0.00 0.00 20,582.64 16,626.72 5,794.75 22,421.46 5,231.31 9,632.81 1,635.66 0.00 5,921.68 3,391.40 2,530.28 0.00 0.00 0.00 0.00 0.00 0.00 2,530.28 31-Mar-12 54,139.71 0.00 0.00 27,915.00 26,224.71 10,346.09 36,570.80 7,301.36 12,688.27 (277.08) 0.00 16,858.26 4,558.21 12,300.05 0.00 0.00 0.00 0.00 0.00 0.00 12,300.05 30-Dec-12 71,094.07 0.00 0.00 40,798.64 30,295.43 8,522.14 38,817.58 8,837.53 14,448.84 1,258.78 0.00 14,272.42 4,507.69 9,764.73 0.00 0.00 0.00 0.00 0.00 0.00 9,764.73

13

Financial Summary LFC Industry

KEY RATIOS (%) Profitability Net Interest Margin Non-Interest Income Margin Cost To Income Return On Assets Return On Equity Dividend Payout Asset Quality Gross NPL Ratio Net NPL Ratio Specific Loan Loss Provisions For Current Year Gross NPL Coverage Loan Loss Reserve Coverage General Loan Loss Reserve Coverage Liquidity & Funding Liquid Asset Ratio Statutory Liquid Asset Ratio Customer Deposits To Total Interest Bearing Funds Loans To Deposits Ratio Loans To Stable Funds Ratio Capital Adequacy Shareholders' Funds To Total Assets Tier 1 Risk Weighted Capital Adequacy Ratio Overall Risk Weighted Capital Adequacy Ratio Internal Rate Of Capital Generation 14.69% 12.63% 14.61% 2.64% 11.79% NA NA (4.09%) 11.36% NA NA 11.55% 14.24% NA NA 31.50% 15.36% NA NA 19.64% 15.49% 15.84% 78.41% 105.02% 75.96% 16.49% 15.62% 85.17% 90.28% 72.33% 14.84% 13.05% 81.08% 103.51% 78.45% 14.85% 14.08% 69.50% 141.31% 87.20% 15.68% 15.22% 63.89% 157.79% 88.27% 6.46% 4.40% 1.34% 55.31% 3.57% 1.45% 7.90% 4.99% 1.86% 71.23% 5.63% 2.65% 7.60% 4.74% 0.29% 66.66% 5.07% 2.12% 5.91% 3.83% 0.21% 51.16% 3.02% 0.88% 5.79% 3.60% 0.84% 48.41% 2.80% 0.55% 5.85% 2.60% 78.93% 0.85% 5.57% 0.00% 6.07% 1.74% 83.35% 0.07% 0.55% 0.00% 7.91% 2.76% 66.29% 2.82% 24.40% 0.00% 8.74% 3.45% 54.66% 5.62% 42.84% 0.00% 9.18% 2.58% 59.99% 4.33% 28.34% 0.00% 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 30-Dec-12

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StandPoint Commentary

No statement in this paper is to be construed as a recommendation to buy, sell or hold securities, or as investment advice, as it does not comment on the security's market price or suitability for any particular investor. Published by RAM Ratings (Lanka) Ltd Reproduction or transmission in any form is prohibited except by permission from RAM Ratings (Lanka) Ltd. Copyright 2013 by RAM Ratings (Lanka) Ltd

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