📈 LFCs Urged to Pivot to Industry & Export Finance: LRA Review

• Licensed Finance Companies (LFCs) must strategically shift focus from consumption lending (e.g., vehicle loans) towards financing industrial upgrading, exports, and capital formation to support sustainable national growth, according to the Lanka Rating Agency (LRA). • The sector shows stronger fundamentals: Assets reached Rs. 2.28 Tn (8% compound growth), and FY24/25 PAT was Rs. 69.4 Bn, with Q1 FY25/26 PAT at Rs. 18 Bn. Regulatory capital is strong at Rs. 433 Bn (CAR ~22%). • Asset quality significantly improved, with the Gross Non-Performing Loan (NPL) ratio falling sharply to ~8.3% from 13.6% a year earlier. Total Loans & Advances stand at Rs. 1.75 Tn (76.6% of assets), with leasing accounting for ~44% of the loan book. • Key risks noted are liquidity pressures, interest rate mismatch (half of long-tenor assets funded by short-term deposits), exposure to gold-price volatility (gold portfolio up 30% in FY24/25), and ongoing consolidation required by the CBSL's NBFI Master Plan. • The LRA believes LFCs are well-placed to support an investment-driven growth model, provided they execute this strategic repositioning.