Central Bank to formulate timelines for 20 finance firms

By Nishel Fernando 
Sri Lanka’s Central Bank (CB) is formulating timelines on an individual basis for twenty out of forty licensed finance companies (LFCs) that are facing liquidity issues to raise sufficient capital by encouraging consolidation, while warning on cancellation of licences failing to meet these timelines. The CB Deputy Governor H.A. Karunaratne last week revealed that 20 out of 40 licensed companies were faced with different level of liquidity issues while some of them are in red-zone with high percentage of non-performing loans.

“Most of them don’t have adequate capital. Considering the number of finance firms in difficult conditions, we are asking them to merge. Either they have to bring the capital or otherwise they will risk potentially losing their licenses,” he said.

Karunaratne noted that several finance companies have also sought a debt moratorium from banks to reschedule loans taken from the banking sector. 

“We are having one-to-one meetings with these companies and discussing their issues. We are giving with timelines, which they have to adhere in raising sufficient capital,” he added. The loan growth of the sector has been adversely impacted due to tightened regulations on vehicle financing such as lower allowable loan-to-value ratios and increased tariffs on
vehicle importation.

During the past year, the sector recorded a negative credit growth with declining profitability and an increase in non-performing loans (NPL). As of November, the sector’s NPL ratio had reached 9.8 percent, inching closer to 10 percent.

The expenditure on loan loss provisioning and suspended interest had reached Rs.84 billion by September quarter. 

Further, nearly 25 percent of LFCs and specialised leasing companies failed to meet Rs.2 billion minimum capital adequacy requirement imposed by the CB for this January. 
Moving forward, the CB has pledged to disclose their names subject to regulatory concerns as depositors of failed finance companies had blamed the CB for the delay in revealing the status of those firms. 

Karunaratne noted that the CB could start payments to depositors within a month following liquidation of the comapnies.

The CB initiated several regulatory measures on finance companies with high level of distress including the cancellation of licence issued to TKS Finance Limited (TKSF) last year.
Karunaratne said repayments for depositors of TKSF would commence this week. CB also intends to move ahead with the liquidation of ETI Finance Limited (ETIFL) and Swarnamahal
Financial Services.