Tough Central Bank regulation compel stringent rules on lending - Sinhaputhra

Sinhaputhra Finance Ltd, one of Kandy’s and Sri Lanka’s pioneering finance companies, has introduced a new Credit Supervision and Risk Management Unit as part of its risk Management process in the new financial year that commenced on April 2007 following tough rules on lending for finance companies by the Central Bank.

This was revealed by of the company in an interview with this newspaper. The company is registered by the Central Bank of Sri Lanka as a deposit taking institution in terms of the Finance Companies Act No. 78 of 1988. It is also a registered Finance Leasing establishment under the Finance Leasing Act No.56 of 2000.

Ravana Wijeyeratne, the company’s Joint Managing Director told The Kandy Times Business that the principal objective of this new unit is to ensure that the company is prudently managed, adequately capitalized and financially sound at all times. “We have as our priorities, the improvement of asset quality of our finance leasing and loan portfolios with the level of non-performing assets and the ratio kept at a reasonable level.”

He said towards this end, they have put in place a stringent credit assessment process to mitigate risks associated with credit. Wijeyeratne emphasised that the company has also implemented a mechanism for the mitigation of risks associated with interest rate risk, liquidity risk, operational risk and legal risk. Wijeyeratne added that there is a well defined criteria applicable to lending transactions depending on the quantum of each facility.

All credit facilities granted by the company are subject to scrutiny by the Corporate Management committee and major facilities are screened at the Credit and Recoveries Committee, a sub committee of the directorate. Facilities beyond a defined limit are referred to the board with the relevant recommendations of the Executive Directors and the committees for analysis and approval.

“We are engaged in a high risk business area that includes finance leasing and loans with the credentials of the prospective customers being comparatively lower than those of formal banks. The high risk nature of the business in which we are involved in and the standing of the customer require us to make a critical analysis of prospective customers in our credit evaluation process along with an effective early action process on recoveries,” the Sinhaputra Managing Director noted.

With the required standards set by the Central Bank for the management of finance companies, the Kandy-based company said they were compelled to tighten lending with a stringent credit evaluation process and the attachment of collateral for transactions over and above a certain value. “This has become important for us in the trade in order to improve the standing of our financial institution today,” he said.

Sabriya Amanulla, Senior Manager (Credit Supervision & Risk Management and head of the Risk Management Unit, said that the introduction of a new lending criteria in 2007/08 has as its priorities, the curtailment of non-performing loans that will improve the company’s interest yield and profitability as part of the risk management process.

She stressed that the improvement of credit quality on each finance leasing and loan transaction, has become the key element on lending and specific measures are being taken to evaluate transactions over and above certain limits to reduce the risk attached. According to her, the mechanism that is in place for the monitoring and supervision of the interest rate risk, liquidity risk and the operational risk should assist the company to maintain the accepted norms on risk management that will guarantee prudential requirements in managing the company.

She also stated that credit granting, recoveries and credit supervision staff will be exposed to numerous training opportunities within and outside during the new year with the intention of improving their abilities and skills in these areas to competencies for the benefit of the company.