Chairman’s Message
CHAIRMAN’S & CEO’S MESSAGE
It gives us great pleasure to present to you the Annual Report and Audited Financial Statements of Co-operative Leasing Company Ltd (CLCL) for the financial year 2022/2023 and welcome you all to the 21st Annual General Meeting of the Company. Unprecedented challenges unfolded due to the economic crisis, casting a pall of gloom through FY2022/23 and severely testing the mettle of people, processes and operations. In the face of this adversity, CLCL agile business model and meticulousstrategies served to minimize the impact of the prevailing operating climate. Your Board exercised prudent management of all key performance pillars within its control, ably supported by committed staff and led by a dynamic Senior Management team.
INDUSTRY CONDITIONS
The continued restrictions on vehicle imports coupled with risen interest rates up to never experienced levels in the country in its history, the Leasing Portfolios the main contributor of the industry gradually declined. The quality of the industry’s lending portfolios as a whole was impacted by rising interest rates and the inability of the typical borrower to settle NBFI credit. The last of the moratoriums extended by the NBFI sector on account of a directive from the Central Bank of Sri Lanka concluded by the end of 2022, causing a further additional cost for the companies for their financial years ending December, 2022 or March, 2023.
Although the most moratorium and other concessionary schemes came to an end introduced by the regulators and other stake holders, the full impact on lenders book is yet to be seen. Hence NBFIs will have to be prepared to stretch the repayment terms of most borrowers in an effort to balance profitability with social responsibility while minimizing the interest rate miss matches through Re-pricing or full settlements.
NON BANK FINANIAL SECTOR CONSOLIDATON PROGRAM Vs CLCL
The above program was re-introduced by the Central Bank of Sri Lanka in the year of late 2019. Over the years CLCL too made various hard efforts and strategies to consolidate / merge with a suitable NBFI sector institution as to the stipulated guide lines. However this remains in an interim position due to various reasons, especially considering the final financial out come to be received to CLCL’s shareholders and the overall controlling stake to be received to the Co-operative Sector as Co-operative Leasing is the only company within the NBFI sector representing Co-operative Sector In the country.
MAINTAINING BUSINESS PERFORMANCE of CLCL AMIDST CHALLENGES
Due to uncertainty in the business environment in the country as in the case of many industries, the impact on the NBFIs also became significant. Although CLCL managed to re-maintained its profitability from FY 21/22 the company witnessed a steep contraction of the loan book, growing Non- Performing Assets (NPA) ratios, and declining ROE and ROA ratios compared to the previousyear. The continuous external events that detracted from the socio-economic landscape over the recent three years and by specially introduction of classification of Stage 03 loans from 90 days past due from 01st April 2023, have collectively resulted for the above.
As to stated reasons CLCL’s restricted lending appetite resulted in achieving only Rs.70.0 Mn growth in its Total Assets or 6% increase over the FY 21/22, while remains same for Company’s interest earning assets.
Since CLCL was able to grow its total assets slightly over the previous year the total borrowings of the Company too rose from Rs.249 Mn to Rs.277 Mn by end of FY 22/23. Due highly elevated interest rate levels in the market and with difficulties to re-price the credit book under stressed economic conditions CLCL’s Net Interest Margin(NIM) fell down from 11 % to 8 % over the year which is a 28 % decline compared to FY 22/23. However comparing to the overall industry average of 6.30% as at end of FY 2023, it reflects Company’s overall ability to maintain one of its Key Performing Indicators (KPI’s) above the industry level.
Together with the effects of declined businesses, moratoriums / concessions offered to its valued clientele by joining in hand and hand with regulatory schemes, CLCL too experienced a decline of Rs.24 Mn in its Gross Income, which is a 14% reduction compared to the FY 21/22. Similarly these market conditions resulted to reduce Company’s Net Interest Income also to Rs.82 Mn in FY 22/23 from Rs.107 Mn in FY 21/22 which is a 23 % decline.
However CLCL was able to yet record a Non Interest Income of Rs.24 Mn by end of FY22/23. Although it is a decline by Rs.5 Mn over the previous year, which we believe as a commendable achievement considering the restricted business environment prevailed.
Considering the overall risks and challenges faced to achieve overall goals especially in gross income and by limiting expenses company maintained strict policies including on its new staff replacements to curtail the expenditure. However these efforts were offset by special expenses had to be incurred by CLCL with related to Company’s Consolidation Program ranging from professional fees, meeting expenses at many times during the period under review.
“Due to highly elevated interest rate levels in the market and difficulties to re-price the credit book under stressed economic conditions CLCL’s Net Interest Margin(NIM) fell down from 11 % to 8 % over the year which is a 28 % decline compared to FY 22/23. However comparing to the overall industry average of 6.30% as at end of FY 2023, it reflects Company’s overall ability to maintain one of its Key Performing Indicators (KPI’s) above the industry level.”
CEO | PRESENT CHAIRMAN
