LB Finance reports robust Dec. profits amid higher provisions

LB Finance PLC reported higher revenues and profits in the three months to December 2023 despite higher provisions made against possible bad loans, operating expenses and taxes as the company gave fresh loans during the period while seemingly expanding its margins.

The company reported a net interest income of Rs.6.65 billion in the October – December, its fiscal third quarter, logging a robust 39 percent growth from the same period in 2022.

This was on the back of 8 percent growth in the interest income and 17 percent decline in the interest expenses to Rs.11.73 billion and Rs.5.08 billion respectively from their year earlier periods.

It appears that the company has managed to stretch its margins a bit while the rates were coming off their peaks in the economy.

The net interest margin is the difference between what the company pays to their depositors and what they receive for the loans and leases they give to borrowers.  

As the December quarter earnings season is slowly getting underway this week, both investors and analysts are waiting to parse their financial statements and what their key executives have to say in their earnings commentary to see if the companies are coming out of the earnings recession which continued through September and what their outlook for 2024.

In banks and finance companies in particular they may be looking at the extent to which the easing interest rates and the relative improvement in economic conditions have relaxed their credit standards.
LB Finance being the third largest non-bank lender with assets of little over Rs.185.0 billion gave out loans worth of Rs.12.75 billion in the nine months through December 2023 but the leases and hire purchases stock contracted by Rs.5.12 billion.

While the company did not provide a breakdown of their loan portfolio, data available from other sources suggested that the non-bank sector leaned heavily on pawning during the last two years due to the absence of the vehicle leasing business which typically account for bigger increase in their assets.

However as the government has indicated their intentions to relax personal vehicle imports at least up to 1,300cc engine capacity this year considering the improvement seen in the foreign exchange conditions in the country, the finance and leasing company sector must be expecting to change their fortune in this area of the business in 2024 and beyond after absence of four years.

Meanwhile the company’s deposit portfolio grew by only Rs.1.39 billion during the nine months to Rs.115.4 billion.
The company reported earnings of Rs. 4.45 a share or Rs.2.47 billion in the three months compared to Rs.3.17 a share or Rs.1.76 billion in the year earlier period.

The company provided Rs.282.3 million for possible bad loans and leases and other financial assets in the quarter, up significantly from Rs.95.29 million in the same period in 2022.

Meanwhile the company’s reported gross non-performing accommodations ratio stood at 4.53 percent, slightly better than the 4.81 percent a year ago.

Dhammika Perera controlled Vallibel One PLC held 51.751 percent stake in LB Finance while Royal Ceramics Lanka PLC, another firm controlled by Perera had 26.079 percent in the company.