Eight finance companies face added liquidity pressure

Eight out of 39 Licensed Finance Companies ( LFCs) have been found non-compliant with the minimum capital adequacy requirement and have been given a time extension to rectify the non-compliance, the Central Bank (CB) disclosed in a public notice.

These companies are Arpico Finance Co. PLC, Associated Motor Finance Co. PLC, Bimputh Finance PLC, Kanrich Finance Ltd, Merchant Bank of Sri Lanka and Finance PLC, Richard Pieris Finance Ltd, Softlogic Finance PLC and UB Finance Co. Ltd.

In addition to these eight, the CB has also said that Nation Lanka Finance PLC was found to be in non-compliance with the minimum capital adequacy requirement and the licensed finance company is yet to submit a feasible capital augmentation plan. LFCs that are non-compliant with minimum capital adequacy requirement are indicated in the public notice as it poses a significant risk to the depositors. Hence, the public is advised to exercise due care when making deposits in LFCs to ensure the safety of their funds and also to refrain from depositing funds in unauthorized institutions/persons.

Sri Lanka's finance and leasing sector is set to face added pressure for consolidation as deadlines for the implementation of tougher capitalisation requirements approach in 2021.

LFCs are required to meet the enhanced Rs.2.5 billion absolute capital requirement by January 1, 2021, up from Rs.2 billion at present.

The minimum Tier 1 capital ratio for LFCs has risen from 6.5 per cent to 7 per cent on July 1, 2020, before increasing further to 8.5 per cent from July 1, 2021.

LFCs are required to insure their deposit liabilities with the Sri Lanka Deposit Insurance and Liquidity Support Scheme ( SLDILSS) established by the CB. Currently, the maximum compensation of Rs. 600,000 per depositor, per institution will be paid by SLDILSS in the event of a suspension/cancellation of any LFC.