Finance companies suffer following the CB directive on vehicle leasing
Finance and Leasing companies have suffered a loss of 30 per cent in their vehicle leasing business in the past six weeks following the Central Bank (CB) directive to restrict the leasing facility to 70 per cent for vehicle purchases with effect from September 15, industry officials said.
The CB circular has driven away the prospective middle income buyers of vehicles and three wheeler buyers of low income groups, they pointed out.
Most of the finance and leasing companies recorded a loss of 60 per cent of their business and others suffered 30 per cent loss, Abans Finance Plc Managing Director Kithsiri Wanigasekera, former President of Finance Houses Association of Sri Lanka, disclosed.
He noted that limiting exposure of banks and financial institutions through the restriction leasing facility is a practice adopted the world-over to mitigate risk of default in loan repayment. Loans and advances include finance leases, hire purchases, loans and advances granted to purchase vehicles.A Finance Ministry official said restrictions on lending to import vehicles could not only control future credit growth of leasing and finance companies but also reduce loan defaults and limit a dollar outflow.
The cost of importing vehicles in the first seven months almost doubled to US $744.4 million this year, Central Bank data showed.
Mahinda Sarathchandra, President of the Vehicle Importers’ Association of Sri Lanka, told the Business Times that there was no significant impact on vehicle sales due to the change in leasing facility.A significant player in car financing in Sri Lanka are the leading car importers themselves through their own captive financing companies, he added.