SMB Finance CEO predicts lending rates will fall in 2023

by Sanath Nanayakkare

Making an interesting bet on the cost of borrowing money by entrepreneurs and businesses, Supul Wijesinghe, CEO of SMB Finance predicted a fall in interest rates in 2023 or in the foreseeable future.

“Interest rates should come down next year or in the foreseeable future as a result of the measures being taken by the Central Bank of Sri Lanka (CBSL) and other stakeholders,” he said addressing the media in Colombo recently.

He made this remark responding to a query from the media as to how his non-banking financial institution – which was recently elevated to SMB Finance from SMB Leasing – would deal with having to lend potential customers at an interest rate of over 30%.

In response he said, “When you have a 30% government borrowing rate – which is bench marked as a risk-free rate by the market, obviously lending rates would be higher than that. In such a context, entrepreneurs will surely contemplate whether they can borrow funds and operate a business with an interest rate of over 30%. This is an issue, and at present, lending is curtailed in both banking and non-banking financial institutions sector due to this reason. But I think this trend will see a favourable change in 2023 or in the foreseeable future.”

SMB Finance currently has 3 branches and they are planning to expand it to 10 branches for which approval has been sought from the CBSL.

“We should have nothing but optimism as we enter the Year 2023. We are looking to set up new branches in four provinces and how and when branches can be set up in the North and the East will be determined subsequently. It could possibly happen in 2024. We have to be mindful of our overhead costs when setting up branches because we have to deliver value to our shareholders,” he said.

When asked about SMB Finance’s growth plans for 2023, he said, “We are planning to launch several new products targeting the small and medium enterprise (SME) sector which has been adversely affected as a consequence of the country’s economic crisis. In Sri Lanka, we mainly pursue asset-based lending. SMB Finance will be looking at entrepreneurs and businesses that don’t have the required collateral, but are running a fairy good business in terms of their cash flow. For instance, I would like to tell you about one of the products we are currently offering the tea industry. There, we enter a tripartite agreement with the tea broker, tea estate/factory and SMB Finance. Through this arrangement, the payment assurances are given by the tea broker affiliated with the tea estate. This way we mitigate the default risk and also support the borrower in a sustainable way. Similarly, we will be looking at various industries producing ecological products and have a steady cash flow. We will be announcing our new product portfolio in the first quarter of 2023.”

SMB Finance PLC Chairman, Ravi Wijeratne, stated that the award of the business license to SMB reflects the Company’s strong balance sheet having a core capital well in excess of minimum requirements stipulated by the CBSL.

SMB Leasing (formerly) increased its Assert Base by over 300% from Rs. 1.5 billion to 5 billion and Shareholder Funds by 200% from Rs. 1.5 billion Rs. 3 billion over the past last three years.

For budgetary purposes, raising of domestic currency debt by the Government of Sri Lanka is mainly made through, Treasury bills and Treasury bonds. At the Treasury bill issuance held on 21 December 2022, Rs. 5,510 million was raised at the Weighted Average Yield Rates of 32.23% and 29.30%. Interest rate movements in the Treasury bill market provide a benchmark for the short-term credit market. Hence, changes in the volumes and rates in the Treasury bill market affect the cost, profitability and liquidity of financial institutions.

Central Bank’s Weekly Economic Indicators showed that Weekly Average Weighted Prime Lending Rate (AWPR) for the week ending 23rd December 2022 increased by 37 bps to 28.68 per cent compared to the previous week.