People’s Leasing December net up amid rising NPL pressure

People’s Leasing & Finance PLC reported some modest performance during the December quarter as the country’s largest non-bank lender by assets became cautious amid the rising bad loans.

The licensed finance company with the backing of the state lender People’s Bank, reported 71 cents a share or Rs.1.1 billion in earnings for the December quarter (3Q18) from the comparable period earnings of 67 cents a share or Rs.1.0 billion, up just 7.0 percent. 

The higher provisions made against the possible bad loans, particularly in the non-vehicle loan portfolio, weighed on the bottom line. The interim income statement for the group showed the impairment charges for loans and other receivables had soared to Rs.454 million for the three months from the Rs.134 million recorded in the same period, which is a threefold increase. 

The total net interest income rose by 18.8 percent year-on-year (YoY) to Rs.3.3 billion aided by the increase in net interest margin from the 6.3 percent to 8.0 percent during the quarter. 
The company also has a 75 percent-owned insurance arm, People’s Insurance PLC.

What is quite notable in the financial statements was the very little growth in new loans and leases. 
The net loan book recorded a growth of 2.1 percent on a quarter-on-quarter basis while for the nine months ended in December the growth registered was just 2.8 percent. 

During the 2Q18, the company registered a flat credit growth despite Rs.7.0 billion disbursements a month. 

The reduced loan-to-value ratio, coupled with the increased vehicle duties, has massively slowed down the demand for new leasing facilities. 

Meanwhile, the company has become cautious in extending non-vehicle loans amid pressure on asset quality. 

The company recently tightened its approval limits, increased due diligence and made changes to the organisational structure to arrest the rising non-performing loans. 

However, the NPL risk on vehicle facilities remains low due to the higher resale value of the vehicles after the increased duties and depreciation of the rupee. 

The company recently diversified to provide gold loan facilities, an area where PLC could do extremely well, given its wider reach. 

Meanwhile, the deposits have grown by 11 percent for the quarter and 46 percent for the nine months to Rs.65.1 billion. 

The company is estimated to have mobilised on average Rs.2.2 billion deposits a month during the December quarter in its quest to diversify its funding sources.

For the nine months, the group reported earnings of Rs.1.87 a share or Rs.2.8 billion from 2.11 a share or Rs.3.2 billion recorded in the same period last year— a decline of 12.3 percent YoY. 
As of December 31, 2017, People’s Bank held a 75 percent stake in PLC, while the Employees’ Provident Fund held 5.43 percent. 

The fifth largest shareholder, Norges Bank, which held a 1.50 percent stake in the company three months ago, has trimmed its stake to 1.0 percent, while Rubber Investment Trust Limited has upped its stake to 0.97 percent from 0.56 percent to become the sixth largest shareholder.