Six-month ultimatum given to 20 troubled finance firms facing liquidity issues

Central Bank (CB) has set up clear targets for the 20 odd non-banking sector financial institutions facing liquidity issues, to be achieved during next 3-6 months.   

“We have given a clear plan to finance companies to be achieved during next 3-6 months. We have given them the option to inject more capital or to merge with others. After the deadline, we will publicise the names of finance companies who fail to meet these targets,” CB Deputy Governor H.A. Karunaratne said. He noted that the CB has drawn these targets for each financial institution on an individual basis with varying timelines up to six months. 

Sri Lanka’s finance and leasing companies are required to maintain a core capital of Rs. 2.5 billion by January 2021.

However, around 10 finance and leasing companies have failed to meet the core capital requirement to-date.

Meanwhile, the CB has launched a fresh attempt to revive the troubled The Finance Company PLC (TFC) which has over Rs.20 billion hole in its balance sheets. 

“We are talking to big banks and big finance companies to see whether we can find some mechanism,” he said.

Karunaratne noted that a consortium of banks or financial institutions could bailout TFC with capital injections. 

The CB is currently awaiting 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.
However, the new government had stressed that it was against their policy to liquidate finance companies. 

The employees and depositors blame CB for the current state of TFC.

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 worth 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.

However, Karunaratne noted that the CB attempted to revive TFC by changing the director board repeatedly when they fail to deliver results. “Ideally, we can hold the director boards responsible,” he stressed.

So far, the CB has facilitated several meetings between the TFC board and financial institutions to explore the possibility of reviving the firm with a capital injection. However, the banks and other leading financial institutions are yet to make a solid commitment.  

Similarly, the CB also has halted the liquidation of ETI Finance Ltd, another troubled finance company awaiting the government’s instructions.