CB mulls report on finance companies

The Central Bank (CB) is considering to put out a report on finance companies based on its on- site examinations, officials said.

“This has to be done very carefully, so as not to cause a systemic risk in the finance companies which will affect the entire financial system,” a senior CB official explained to the Business Times. He said the CB carries out on- site examinations by visiting the premises of financial institutions to assess their business operations.

The CB verifies their compliance with prudential and regulatory requirements and assessing the various risks, such as credit risk, liquidity risk, market risk and operational risk and risk management capacity of the institutions. On the basis of the findings of these examinations, the CB continuously communicates with the management of the institutions and requires them to initiate prompt actions to address the problems and weaknesses observed, he said.

“The CB contributes to the stability of the financial system by examining financial institutions' risk management processes as well as reaching an informed judgement on their business activities and financial conditions, and, when necessary, urging improvement, through on-site examinations.”

The CB on– site examinations more often than not, reveal certain violations done by the finance companies. An on- site examination is done once every two years.

According to the official, CB will start with publishing certain minor violations as ‘financial literacy‘ is very low in the country and the public may misunderstand the message. “We might publish something like a finance company being asked to reduce its branches as they couldn’t rationalise their branch expansion, so that it will not have a material impact on the way the public sees the finance company,“he explained. The CB is also planning to get the eight unlisted finance companies to go public, at least in the Diri Savi Board of the Colombo Stock Exchange.