Depositors of failed finance firms paid Rs.850mn in 2019

• Amount set to go up considerably this year with liquidation of several finance firms
• In 2018, SLDILSS paid Rs.2.9bn as compensation to depositors of failed finance firms
• SLDILSS was set up in 2010 to deal with Ceylinco Group collapse 
• Around 76 banks and finance companies contribute annually to the fund

Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) set up to redress to depositors of failed financial institutions has released Rs.851.8 million as compensation during 2019, while the Fund has grown by nearly Rs.11 billion to Rs.62.7 billion, the published audited financial 
statements showed.     

In comparison, the Scheme had released Rs.2.9 billion as compensation to depositors in 2018 while the Fund size was Rs.51.9 billion. 

Apart from what has been paid, the Scheme also had a provision for Rs.1.5 billion for further compensation under liabilities of the Scheme, down from Rs.2.3 billion in 2018. 

The Scheme was set up in 2010 under the Central Bank in response to the collapse of Ceylinco Group, which caused a deposit run on several other lending institutions, including a bank.  Under the Scheme, each depositor receives up to Rs.600, 000 in case of financial 
institute liquidation. 

Around 76 banks and finance companies contribute annually to the Fund. A licensed commercial bank with a capital adequacy ratio of 14 percent or above is required to pay a premium of 0.10 percent of its total deposit liability, barring a few ineligible deposit types, annually, while those with lower capital adequacy are required to pay a higher premium at 0.125 percent on their deposit liability. 

Meanwhile, a licensed finance company is required to contribute 0.15 percent of their deposits annually to the Fund. 

In 2019, such premiums received by the member institutions amounted to Rs.9.3 billion compared to Rs.8.9 billion in 2018. 

The Scheme also generates income from interest it receives by investing the Fund’s assets in financial instruments. Such interest income for 2019 amounted to Rs.6.6 billion, up from 5.2 billion in 2018.

The Fund’s significance improved dramatically in 2020 and more during the pandemic as the Monetary Board of the Central Bank decided to provide finance companies who may find liquidity concerns when they pass down the relief to their borrowers by way of moratoria and loan restructuring, with liquidity support using the Scheme on acceptable collateral. 

“…arrangements have been made to provide liquidity support under Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) for Licensed Finance Companies with acceptable collateral to facilitate urgent liquidity needs of such LFCs, in order to ensure the safety and soundness of LFCs,” the Department of Supervision of Non-Bank Financial Institutions said in April. 

Meanwhile, the disbursements under the Scheme is also expected to become larger this year as the Central Bank has decided to liquidate several beleaguered finance companies which continue to fail to live up to the standards or revive their businesses with the infusion of fresh capital.