Employees, depositors blame CB for driving TFC to bankruptcy

From left:  TFC Independent Depositors Association President Shobani Munasinghe and TFC employees’ union President Duminda Tilkeratne
Pic by Kushan Pathiraja

• Charge CB’s actions drove firm towards Rs.20bn hole in balance sheet, from Rs.1.4bn net asset base in 2009
• Blame CB-appointed boards for losses incurred by the firm; say CB can’t evade responsibility
• CB is currently awaiting government’s nod to liquidate TFC, after issuing a notice of cancellation of licence
• Employees fear that if TFC is to be liquidated, its assets could be auctioned at below market prices 

By Nishel Fernando
The employees and depositors of troubled The Finance Company PLC (TFC), which is now facing a licence cancellation, accused the financial sector regulator, the Central Bank (CB), for driving the firm towards a nearly Rs.20 billion hole in the balance sheet, from a Rs.1.4 billion net asset base in 2009 and urged the president and prime minister to directly intervene to bring justice to about 150,000 depositors.

In 2009, TFC, which was part of the Ceylinco group, was placed under the preview of the CB, due to liquidity issues. However, TFC had total assets amounting to Rs.36.7 billion and total liabilities amounting to Rs.35.54 billion with positive net assets of Rs.1.4 billion.

Under the supervision of the CB, TFC’s net assets turned to negative Rs.19.7 billion with total net assets declining to Rs.9.5 billion and total liabilities to Rs.29.3 billion by end-January, according to TFC employees’ union.

“The losses were incurred due to the decisions made by various CB-appointed board directors, under the close watch of the CB. How could Rs.1.4 billion positive net asset turn into Rs.20 billion net liabilities in 11 years? The CB can’t be released from its responsibilities after appointing a director board,” TFC employees’ union President Duminda Tilkeratne said.

The CB is currently awaiting the government’s nod to liquidate TFC, after issuing a notice of cancellation of licence under the Finance Business Act No. 42 of 2011 (FBA), on October 23, 2019.

Although the CB claimed that it can settle 94 percent of depositors’ funds below Rs.600,000, with the Deposit Insurance and Liquidity Support Scheme, the employees and depositors pointed out that it only accounts for Rs.11 billion, out of the Rs.26 billion liabilities owed to depositors.

There are around 10,000 depositors with the majority being senior citizens who have deposited their life savings with TFC. “Around 60 percent of depositors are senior citizens. They have no opportunity to earn further. They are compelled to spend their old age living in uncertainty, distress and anxiety. There were some depositors who could not bear the agony of having to live without an income to even buy their medicines and passed away due to stress,” the Independent Depositors Association stated.

Nirmala, a cancer patient, who has deposited Rs.6 million in TFC with the savings she made as a housemaid, is now faced with severe difficulties in affording her medicines, which could threaten her life.

Similarly, the Independent Depositors Association of TFC noted that a large number of depositors are facing difficulties to finance their medical requirements or higher education needs of their children.

“Some of the caretakers of the disabled depositors have left them as these depositors are unable to pay the salaries for their caretakers,” a spokesperson of the Independent Depositors Association of TFC said.

Further, Rs.300 million worth of employees’ funds are also with TFC, in addition to Rs.10 million funds of its employees’ union. Tilkeratne noted that the board of directors in January 2019 instructed the employees to carry promotional activities to raise new deposits under the close watch of the CB, when the company was struggling to make interest payments to its existing deposits. Consequently, TFC raised Rs.946 million worth of new deposits from the existing customers and new customers. However, a month later, the CB imposed restrictions on TFC and halted withdrawal from both fixed and saving deposits by the depositors.

In another questionable move by the CB, Tilkeratne revealed that the CB granted a Rs.6 billion loan to TFC in 2014. However, the CB has instructed to invest Rs.4.1 billion of it in a 10-year treasury bond at the 9 percent rate and in addition, the CB instructed the firm to invest Rs.650 million of its funds in the same bond.

However, the CB prevented TFC enjoying the said coupon interest rate by instructing the firm to invest the coupon interest received biannually in treasury bills, through Bank of Ceylon. Even though TFC utilised only Rs.1.8 billion from the said Rs.6 billion loan, the firm was forced to pay 3 percent interest for entire Rs.6 billion, until the settlement.

At the end, TFC incurred a loss of Rs.475 million on disposing the treasury bond, due to the rate fluctuations.

The employees of the firm also questioned the CB and TFC’s board of directors’ treatment of potential investors while pointing out that although 25 MoUs were signed with potential investors, none of these investments were realised to revive the firm. “Without a single letter from Tata, the Monetary Board approved the proposal to divest TFC to Tata, while offering the banking licence. However, when it comes to other potential investors, they were not so keen,” a TFC employee said. The TFC employees also claimed that TFC was en route to breakeven by 2018, referring to documents released to the management in 2015. However, they pointed out that the changes in the management led to an increase of Rs.10 billion in liabilities since then.

They fear that within one to two months, TFC would be forced to halt interest payments to depositors, as the CB has restricted new investment with TFC’s funds. The interest payment amounts to Rs.140-150 million per month.

The TFC employees also fear that if TFC is to be liquidated, the assets of TFC could be auctioned at below market prices. “We have at least Rs.4 billion worth of assets belonging to Sussex College, 20,000 square feet in the Ceylinco building, which is considerable prime real estate located overlooking Colombo Port City. Certain individuals are waiting until we dispose these properties to purchase them at bargain rates,” a TFC employee said.

The depositors have already filed an FR petition at the Supreme Court against the CB and TFC depositors and employees are also planning for a protest at Galle Face tomorrow, to draw the attention of the policymakers of the country. Therefore, both depositors and employees of TFC urged the president and prime minister to resolve the current crisis in TFC, as promised by Economic Affairs Senior Advisor to Prime Minister Ajith Nivard Cabraal.