LB Finance Sept. earnings offer glimpse into easing financial conditions & lowering credit costs

Coming out with the first batch of earnings reports for the September quarter, LB Finance PLC offered a glimpse into how the financial intermediaries fared during the foregoing quarter characterised with further decline in interest rates, recovering economy and the broadening in the lending mix.
LB Finance PLC, country’s second largest finance company by assets reported earnings of Rs. 4.52 a share or Rs.2.50 billion in the July – September quarter, the company’s second fiscal quarter compared to Rs.4.17 a share or Rs.2.31 billion in the same period in 2023.
The performance was possible from the modestly higher net interest incomes, soaring fee incomes and a slump in the provisions made for possible loan defaults.
Investors cheered the company’s performance by sending its share higher by 4.11 percent or Rs.2.90 to Rs.73.50 by Friday close after the company reported its earnings after the market close on Wednesday as Thursday was a market holiday.
Investors and analysts are taking a closer look at the earnings reports coming out of this quarter for reaffirmation of the strength of the real economy that is often being portrayed by the macro-economic readings that have been mostly positive this year.
In particular, they are parsing the bank and major finance company reports to see how the lower interest rates and the strengthening economy are translating into growth in their loans and credit costs, which had been plenty until four quarters ago when the economy was still under the grips of the crisis.
LB Finance reported a net interest income of Rs. 6.52 billion for the September quarter, up 6.0 percent from a year earlier as interest expenses fell sharply by 25 percent compared to a 9 percent decline in the corresponding interest income.

This signalled that the company might have stretched its interest margins during the quarter as they have notably cut what they pay on their deposits.
The average weighted deposit rate has fallen to just above 7.0 percent by the end of September in the licensed commercial banking sector, the data showed. But the finance companies in comparison offer a slight premium to that of the banks for the deposits they mobilise.
The biggest income propeller in the quarter was the fee income which jumped 51 percent to Rs.1.15 billion which perhaps comes mainly from the company’s pawning business as LB Finance is one of the biggest players in the gold-backed lending space.
Meanwhile, another notable development that was seen in the company was that it had set aside only Rs.40.9 million for possible loan losses, less than a third of what it provided in the same period last year.
This reflects that the worst is behind them on credit costs as the rates ease and the economy is recovering which again puts money back in the pockets of people which help them to service their loans.
The company’s gross non-performing loans ratio was at 2.86 percent by September end, compared to 6.39 percent a year ago.
In the six months through September 2024, the company gave loans roughly worth of Rs.17.1 billion, of which a significant share came from loans, as leases are yet to contribute meaningfully as the vehicle imports still remain under suspension while the prices of vehicles are still at elevated levels.
Dhammika Perera controlled Vallibel One PLC held 51.75 percent stake in LB Finance while other entities linked to him held further stakes in the company.