CB halts The Finance from taking new deposits, issuing loans

•  Expert panel in banking and finance appointed to facilitate the firm’s restructuring
•  CB’s deposit insurance and liquidity support scheme could cover 93% of TFC depositors in full

By Nishel Fernando

The Central Bank suspended the troubled non-banking financial institution The Finance Company (TFC) from taking new deposits and issuing loans with effects from yesterday (15th) as the losses at TFC continued to expand, amplifying the firm’s already severe liquidity issues. 

“The Monetary Board of the Central Bank of Sri Lanka (at its meeting held on 08th February 2019), having considered the weak financial performances of TFC, decided to take a number of regulatory action, as temporary measures, under the provisions of Finance Business Act No. 42 of 2011, with effect from 15th February 2019, with a view to safeguard the interests of the depositors and other stakeholders of the company. 

The proposed regulatory measures include suspension of accepting new deposits, restrictions on withdrawal of deposits and restricting disbursement of loans and advances to facilitate the restructuring process of TFC. At the same time, all borrowers of the company are strictly advised to pay their dues,” the Central Bank said.
TFC was severely impacted by the failure of a number of financial institutions within the group in 2008, and its financial status deteriorated since then, coupled with severe liquidity issues. 

The Central Bank also announced the appointment of an expert’s panel in banking and finance to facilitate the restructuring process of TFC as previous efforts in identifying prospective investors and restructuring of the company have failed. 

The company was seeking a strategic investor/s who could invest US$125 million as a special private share placement to turn around the firm within two years.
“Although, several attempts were made to identify prospective investors and to restructure the company, such efforts have not materialized yet. Thus the continuity of the current status will be further detrimental to the interest of depositors and other stakeholders of the company.

“With the restructuring process, it is expected to improve the cash flows and facilitate the prospective investors and revival of the company,” the Central Bank said. 

According to unaudited financial reports, TFC’s net losses expanded 55 percent to Rs. 2.6 billion during first nine months of 2018 financial year compared to the same period of the previous year. The basic loss per share stood at Rs.10.39 at the end of the third quarter of 2018.

The accumulated losses at the end of third quarter amounted to Rs.  24.9 billion, which was higher than the total asset base of the company. 

The firm’s total assets have declined to Rs.14.4 billion at the end of third quarter compared with the beginning of the year, when company had a total asset base of Rs.23.5 billion. 

Net asset value per share stood at negative Rs.106.5 as at December 31, 2018 compared to negative net asset value per share Rs.90.24 at March 31, 2018.
As at 31st December 2018, high net worth investor Dr. T. Senthilverl held 11.79 percent shares of the firm. 

According to the Central Bank, 93 percent of TFC depositors are holding deposits below Rs.600,000 and hence they can be paid their full deposit through the deposit insurance and liquidity support scheme, in case if the firm goes into liquidation.