Finance companies lose COVID-19-driven deposit boom to banks

• Banks attract Rs.1.2tn in customer deposits in Jan.-Aug. period 
• NBFI sector witnesses drain of Rs.22.7bn from its deposit base
• Some larger licensed finance companies let go of part of their deposits due to negative growth for loans

Despite the massive customer deposit pile-up at banks, thanks to COVID-19 restrictions, Sri Lanka’s licensed finance companies have failed to have a piece of the pie or at least to cling on to their existing deposit base.
While the banking sector attracted Rs.1.2 trillion worth of customer deposits during the first eight months of the year, logging a 12.9 percent increase, the licensed finance companies saw a drain of deposits to the tune of Rs.22.7 billion or negative 3.0 percent during January through August. 

This is in comparison to a 6.7 percent growth in the deposits recorded in the comparable period, last year.
The banking sector saw its largest ever deposit pile during the first nine months of 2020, a few times the growth in loans, as companies that became more frugal in their spending parked their cash in banks, as cash is considered king at times of market turmoil, while individuals watched their savings account balances grow every month, since the pandemic gave them little options to spend other than essentials. 

During the first eight months, banks gave loans worth of Rs.725.6 billion, an increase of 8.9 percent, compared to Rs.102.7 billion in the same period, last year. About 76 percent of loans however, were provided to the government and state-owned enterprises. 

The data suggests that the licensed finance companies, which often quote higher rates to that of banks to woo depositors, failed to make the most of this deposit extravaganza to plug holes in their funding profiles and cushion their liquidity profiles. 

 Nevertheless, some large licensed finance companies also let go of part of their deposits during 2020, due to the negative growth for loans stemmed from the pandemic and the temporary suspension on the import of personal vehicles—the non-bank finance company (NBFI) sector’s most thriving market.

This fact was reinforced by some large to medium-sized licensed finance companies settling their dues to banks during the period, as they are left with excess liquidity, much higher than required by the regulator. 

The NBFI sector’s net assets contracted by 3.1 percent or Rs.44.0 billion during the eight months to Rs.1,388.7 billion while the loans and advances portfolio fell by 2.5 percent or Rs.27.3 billion by end-August 2020. 

The borrowings of the sector also contracted by 12.2 percent or Rs.49.6 billion, as companies settled their liabilities to banks and other debt instrument holders.