Lanka ORIX Finance records momentous growth in profits - 02 Jun 2012

Continuing the growth momentum set in the previous year, Lanka ORIX Finance PLC (LOFC) concluded an impressive financial year showing significant growth in its core business of savings, fixed deposits and lending. The lending portfolio increased by Rs.12Bn, a 60% increase from the previous year, a direct result of the Company’s island wide presence through fully fledged branches and service centers numbering 129, further consolidating its presence in the regions. During the year, the Company opened 13 new branches in strategic locations, especially in the North and East.

The interest income of the Company reaped the benefits of the growth in the portfolio recording a 93% increase year on year to end at Rs.6Bn compared with the Rs.3.1Bn in the previous year.

Though the advances granted showed significant increase, the growth did not trade off credit quality of the portfolio. Impressive collections were the result of the robust recovery mechanism established by the Company which ensured that the net Non Performing Advances ratio was contained at 1.5%. The cost to income ratio of the Company stood at 42%, confirming the efficiency of the conduct of operations despite cost escalations resulting from the strategic expansion of the distribution network and the higher level of deposit mobilization and the growth in the lending book.

The overall PBT of the Company showed an increase of 20% closing the year at Rs.1.8Bn. Current year’s profits correspond directly to the organic growth in the portfolio and the resulting interest income which doubled during the period under review. This is considered a significant achievement when compared with the capital gains on Treasury Bonds and profit from the sale of the pawning portfolio recorded in the previous year, which are non-recurring income. Company’s carefully mapped strategies for aggressive top line growth, deposit mobilization, collection efficiency and expense management initiatives led to impressive core business profit growth. The PAT for the reporting period was Rs. 1.25Bn.

The accelerated growth in the lending business was well supported by the growth in the deposit base which stood at Rs.25Bn at the year-end recording 44% growth over the previous year, making LOFC one of the largest non-banking financial institutions in terms of customer deposits. The Foreign currency deposit base showed impressive growth recording a 173% increase. The growth experienced in the foreign currency deposit base is expected to continue as a result of the ties established with several foreign exchange houses making LOFC a convenient and cost effective channel for foreign currency remittances. In line with the LOLC Group policy of 100% hedging of all open foreign exchange positions, the Company fully hedged its foreign currency deposits against exchange rate fluctuations by engaging in FX swaps in the interbank market. The Company’s policy of zero exposure is very much in line with the mandate given by the Central Bank of Sri Lanka (CBSL) to the LOLC Group to have no exposure on all its foreign exchange borrowings. LOFC is the only non-banking financial institution in the country to have received the blessings of the CBSL to transact in SWAP transactions.

LOFC acquired the remaining leasing book of the Parent Company, as LOLC PLC no longer operates as a Specialized Leasing Company subsequent to its change of status to a diversified Conglomerate. The Company also benefits from the strong franchise of the branch network established by LOLC, strategically located branches island wide which includes twelve in the North and the East. The Company continued expanding businesses in the newly opened up provinces, and offers the SME and Micro sectors funding for income generating assets and savings and fixed deposits products.

The Company had liquid assets to the quantum of Rs.3.3Bn while the required minimum amount was only Rs.2.6Bn, demonstrating the strong liquidity position of the Company. The core capital of the Company at year end stood at Rs. 4.8Bn which was 19% of the deposit base (minimum requirement 10%), and the capital adequacy ratio was well above the required minimum of 10% and stood at 14.4% at the year end.

The Islamic Business Unit (IBU) of LOFC, Al Falaah, also recorded growth in the current year and its portfolio stood at Rs.4.7Bn, an increase of 34%. This resulted in the business unit increasing its gross income by 74% to close the year at Rs. 862Mn. The Mudharabah deposits at the year-end stood at Rs.3.5Bn, an increase of 22% from the previous year. The IBU business is present at all locations of LOFC, while having 4 dedicated Al Falaah branches. LOFC’s Islamic lending portfolio is one of the largest books in the country. Al Falaah is supervised by the in house Shariah Board, ensuring compliance with Shariah law.

In conclusion, Mr. Kapila Jayawardena, Chairman of Lanka ORIX Finance PLC/Group Managing Director & CEO of LOLC, said that the performance of the Company exceeded the expected targets set out at the beginning of the year. Adding further he said, “We will continue to stay ahead in the fast developing competitive environment and make Lanka ORIX Finance the catalyst that will support the SME sector in the Country’s economic development process. In reaching this segment, we will continue to expand our operations systematically and develop new financial instruments”.

Kapila Jayawardena Chairman Lanka ORIX Finance PLC and Group Managing Director & CEO, LOLC
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