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LB Finance Rationalises Its Gold Portfolio
On The Back Of Falling Prices
Bimal Perera and Ms. Shyamalie Weerasooriya
LB Finance, which is among the island’s top three registered finance companies, like most financial institutions at least in Sri Lanka, has taken a hit due to falling gold prices.
Year on year (YoY), for the half year ended September 30, 2013, there has been a contraction in profits because of the fall in gold prices, though other sectors have had done well, its Chief Financial Officer Ms. Shyamalie Weerasooriya told reporters in Colombo on Tuesday (November 12).
“However, certain gold backed loans which we considered bad in the previous quarter (Q), we were able to recover in the following Q,” its Chief Risk Officer Bimal Perera said.
“Despite these seeming vicissitudes, our NPLs are at a low of 3.5%, compared with an industry average of 7-8%,” he added.
Perera further said that to mitigate any possible future downside risks, the “tenures” of loans on gold backed assets has had been reduced to a month.
Further, the value of lending, from a peak of 90% of the value of the asset, has been reduced to 70-80%, he said.
Before Gold prices began falling in April, June, it was on a continuous upward movement months on end, said Perera.
The collapse of gold prices gathered momentum after Federal Reserve System (Fed.) Chairman Ben S. Bernanke announced in June that the beginning of the end of the Fed.’s bond buying programme is nigh due to the recovery of the US economy.
That resulted in investors who had previously invested in gold due to the almost zero interest rate regime in the USA, beginning to exit from such assets, to seek re-investments in the USA’s rising interest rate market.
The contraction in the demand for gold therefore, led to a fall in its prices.
Gold received a further blow the previous week, due to good jobs data emanating from the private sector of the USA.
A banker said that as a result, some expect the Fed. to begin tapering off its bond buying programme as early as next month. “But I for one believe that it will take place either in the first Q (1Q) of next year, or in its 2Q,” he said.
Meanwhile Perera said that in the 1Q of the current calendar year (ended on June 30, 2013), due to the fall in gold prices, they had had adjusted gold prices downwards at US$ ($) 1,200 an ounce as a prudential measure. “Today it’s at $ 1,280; thereby giving us a buffer,” he said.
“Our gold exposure, which comprised 25% of our total lending portfolio as at March 31, 2013; has since come down to under18%,” he said.
On The Back Of Falling Prices
Bimal Perera and Ms. Shyamalie Weerasooriya
LB Finance, which is among the island’s top three registered finance companies, like most financial institutions at least in Sri Lanka, has taken a hit due to falling gold prices.
Year on year (YoY), for the half year ended September 30, 2013, there has been a contraction in profits because of the fall in gold prices, though other sectors have had done well, its Chief Financial Officer Ms. Shyamalie Weerasooriya told reporters in Colombo on Tuesday (November 12).
“However, certain gold backed loans which we considered bad in the previous quarter (Q), we were able to recover in the following Q,” its Chief Risk Officer Bimal Perera said.
“Despite these seeming vicissitudes, our NPLs are at a low of 3.5%, compared with an industry average of 7-8%,” he added.
Perera further said that to mitigate any possible future downside risks, the “tenures” of loans on gold backed assets has had been reduced to a month.
Further, the value of lending, from a peak of 90% of the value of the asset, has been reduced to 70-80%, he said.
Before Gold prices began falling in April, June, it was on a continuous upward movement months on end, said Perera.
The collapse of gold prices gathered momentum after Federal Reserve System (Fed.) Chairman Ben S. Bernanke announced in June that the beginning of the end of the Fed.’s bond buying programme is nigh due to the recovery of the US economy.
That resulted in investors who had previously invested in gold due to the almost zero interest rate regime in the USA, beginning to exit from such assets, to seek re-investments in the USA’s rising interest rate market.
The contraction in the demand for gold therefore, led to a fall in its prices.
Gold received a further blow the previous week, due to good jobs data emanating from the private sector of the USA.
A banker said that as a result, some expect the Fed. to begin tapering off its bond buying programme as early as next month. “But I for one believe that it will take place either in the first Q (1Q) of next year, or in its 2Q,” he said.
Meanwhile Perera said that in the 1Q of the current calendar year (ended on June 30, 2013), due to the fall in gold prices, they had had adjusted gold prices downwards at US$ ($) 1,200 an ounce as a prudential measure. “Today it’s at $ 1,280; thereby giving us a buffer,” he said.
“Our gold exposure, which comprised 25% of our total lending portfolio as at March 31, 2013; has since come down to under18%,” he said.
