LB Finance secures 1st place in K Seeds Investments’ ranking report

K Seeds Investments has identified LB Finance PLC as the best performing Finance Company under the 1st category among the 27 listed Finance Companies in Sri Lanka through a ranking carried out based on their financial performance for the third quarter of 2023/24. 

The report segregates the finance companies based on the size of their asset base and ranks them in their respective categories among their peers based on 10 financial metrics, which are calculated from the quarterly financial statements. LB Finance topped the overall spectrum by belonging to “Category 1” (asset base > Rs. 100 billion). The Categories 2, 3 and 4 represent the companies having an asset base between Rs. 50 to 100 billion, 20 to50 billion and less than 20 billion respectively.

During the quarter under review, from 1 October to 31 December 2023, Sri Lanka’s financial sector faced a multifaceted set of challenges, deeply influenced by the country’s broader economic difficulties. The sector was navigating through an ongoing economic crisis, marked by uncertainties and a slowdown in economic growth. In this challenging macroeconomic landscape, some financial institutions managed to demonstrate resilience.

The Licensed Finance companies recorded a contraction in its loans and advances portfolio in 2023, due to the difficulties encountered in its primary operations related to leasing and hire purchases which was caused due to the restrictions on vehicle imports and adverse macro-economic conditions. Amidst the challenges, LFCs diversified its business towards pawning advances/gold backed loans to stand firm during the period.

There has been an improvement in the default risk during the second half of 2023 with the deceleration of stage 3 loans over the period. The sector’s liquidity status continued to exceed the regulatory threshold, primarily attributed to heightened investments in Government securities.

Building on the efforts made over the past few years to promote the consolidation of Non-Bank Financial Institutions (NBFIs) and enhance their strength and resilience in the medium term, a new guideline was issued in 2023 regarding the declaration of dividends or repatriation of profits. This initiative is anticipated to bolster the resilience of NBFIs during periods of uncertainty, enhancing their ability to withstand economic shocks. It also aims to ensure that these institutions can continue meeting the credit requirements of their customers by maintaining adequate capital levels.

The Sri Lankan economy started showing signs of gradual recovery during the latter part of 2023 with the reduction of inflation to single digit levels within a period of one year. The Central Bank guided the financial system through a challenging period by implementing thoughtful policy measures, such as enhancing crisis preparedness and management frameworks. This underscores the Central Bank’s dedication to safeguarding the stability and trustworthiness of the financial system.

Throughout this period, the financial sector in Sri Lanka demonstrated an admirable degree of adaptability and resilience, despite facing numerous challenges stemming from the economic crisis and its widespread repercussions.

However, despite all these factors, LB Finance PLC managed to maintain their top rank in the series of ranking reports released by K Seeds Investments on the finance sector of Sri Lanka. The report ranks the finance companies according to their financial results released through interim reports on Colombo Stock Exchange across ten key performance indicators (KPIs) – cost to income ratio, net profit margin, impairment to loan book, return on equity, return on assets, net interest margin, credit to deposits, operating leverage, net profit growth and loan growth. These 10 KPIs are weighted equally and an overall ranking is arrived at, based on the aggregate score for each category.

K Seeds Investments is a boutique investment banking firm, specialising in mergers and acquisitions, balance sheet restructuring, equity/debt placements, treasury management, corporate restructuring and talent management.