Central Bank ready to provide liquidity support to finance companies

In a fresh move to provide further support to the licensed finance companies (LFCs), which are engaged in passing down the relief to their borrowers affected by the pandemic, the Monetary Board has decided to provide them with liquidity from the Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS). 

Two weeks ago, the Central Bank announced a slew of measures, which includes going easy on LFCs’ mandatory liquidity requirements and gave a reprieve on their regulatory capital requirements up to two years. 

At the time, the Monetary Board was considering releasing liquidity to the finance companies from the Scheme, should any need arose. 

Now the Monetary Board has decided to provide liquidity from the Scheme with acceptable collaterals and is considering further measures to inject more liquidity into the system. 

“… arrangements have been made to provide liquidity support under the Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) for LFCs with acceptable collaterals to facilitate the urgent liquidity needs of such LFCs, in order to ensure the safety and soundness of LFCs. 

Several other measures to enhance the liquidity are being currently considered to inject more liquidity to the system,” a statement from the Supervision of Non-Bank Financial Institutions Department said. 

On March 27, the Monetary Board announced to suspend the capital and interest of a broader segment of borrowers, including small businesses, self-employed and workers, for three to six months, depending on the group. 

In the same circular, the Central Bank requested both the banks and non-banking sector to participate in a Rs.50 billion refinance scheme, to provide those businesses with working capital loans at 4 percent interest suspended for six months.  

The SLDILSS was set up in 2010, in response to the collapse of the Ceylinco group.

By end-2018, the fund had Rs.53 billion of assets and in that year, it had granted a loan of Rs.1.9 billion to a lending institution to restructure its balance sheet. 

In the case of a liquidation of a financial institute, the fund provides insurance coverage up to Rs.600,000 per depositor. 

Around 76 banks and finance companies contribute annually to the fund. The licensed banks with a capital adequacy of 14 percent or above are required to pay a premium of 0.10 percent of total deposits minus a few ineligible deposit types annually, while those banks with lower capital adequacy are required to pay 0.125 percent. 
The LFCs are required to pay 0.15 percent of their deposits annually to the fund. 

Meanwhile, the Central Bank urged the finance companies to become leaner by cutting operational costs. 

“In addition to that, the NBFIs are advised to take all possible measures to minimise their operational costs and to provide the benefits to the needy people who have been affected with this COVID-19 pandemic and to revive their businesses. 

While the CBSL will closely monitor the operations of all financial institutions with the latest market developments and take further measures appropriately in order to maintain the financial system stability of the country, the public is hereby requested to support the initiatives taken by the authorities,” it further added.