A deeper analysis of finance companies

Monday, 17 December 2012 00:00 - - {{hitsCtrl.values.hits}}

By a Special Correspondent

Recent media reports in relation to the half-year results of finance companies are indeed interesting reading.

Industry leaders Central Finance and LB Finance have continued to show impressive results for the six months, with Central Finance earning a net profit of Rs. 1.6 billion on a deposit base of Rs. 23 billion. LB Finance too has recorded a profit of Rs. 862 million on a deposit base of Rs. 33 billion. However, it should be noted that Central Finance with its long history has upto 15 billion in shareholders’ funds whilst LB Finance stands at Rs. 4.5 billion.

The most interesting results are in relation to the medium-sized companies with deposit bases between Rs. 5 to 10 billion. Mercantile Investments and Alliance Finance top the list with net profits of Rs. 416 million and Rs. 254 million on deposit bases of Rs. 6.6 billion and Rs. 7.8 billion respectively. However it should be noted that Mercantile Credit has accumulated funds of shareholders of 5.7 billion as opposed to Alliance of 1.5 billion.

The comparatively new entrant Vallibel Finance perhaps has been the most impressive, making a net profit of Rs. 128 million, having a deposit base of Rs. 4.8 billion.

It is interesting to note another company having a deposit base of Rs. 5.5 billion and in existence for a long period making a profit of only Rs. 11 million. This clearly reveals that all is not well and the authorities should take a closer look of the functioning of this company in the interest of its deposit holders.

The recent exodus of Directors including two eminent Supreme Court judges raises further doubts about the long-term viability of this company. A timely analysis of comparable companies will prevent deposit holders losing their life savings as witnessed not very long ago with the Ceylinco debacle.

The small companies i.e. deposit bases up to Rs. 2.5 billion, have continued to perform impressively and have prudently avoided harnessing public funds for their activities. Trade Finance and Investments stands out in this group, making a profit of Rs. 719 million on a deposit base of a mere Rs. 460 million.