Financial Asset Management Company to resurrect ailing finance companies

Sri Lanka’s ailing licensed finance companies are to be resurrected by infusing fresh capital as liquidity support to manage their non-performing loans with state support.

New regulations will be introduced by the Central Bank ( CB) to safeguard the interests of depositors by taking prompt action against non- compliant, ailing and high risk finance companies, high official sources of the CB revealed.

The Financial Asset Management Company (FAMA) is to be set up in line with a model adopted by East Asian countries soon to help these ailing companies to resurrect them.

The FAMA is proposed to help by arranging for leading finance companies and their investors to provide funding support to these companies for business operations in the interest of safeguarding and promoting the non- banking financial sector.

The Central Bank will provide regulatory facilitation and arrange infusion of fresh capital from investors.

Several investors with overseas links are in negotiation with the bank towards this end, official sources said.

According to Central Bank regulations introduced in July 2018, finance companies will be required to maintain at least 10 per cent capital adequacy.

By July 2019, capital adequacy has to increase to 10.5 per cent; ultimately it has to be increased to 12.5 per cent by July 2021 onwards.

Under the present Exchange Control laws, foreigners are permitted to invest in debt securities of licensed commercial banks, licensed specialised banks, licensed finance companies, specialised leasing companies subject to the approval of the relevant regulatory authorities.

This will also help in resurrecting ailing finance companies in the country, he added.

Of the 46 licensed financial companies in Sri Lanka, 15 are presently facing liquidity issues, with six at a high level of distress with non-performing loans ranging from 50 to 90 per cent, the International Monetary Fund (IMF) revealed in a recent report.

However in response to some questions raised under the Right to Information Act, the Central Bank disclosed 13 registered finance companies out of 43 have collapsed.

Administration and management of nine registered finance companies have been vested with the Central Bank and liquidated while two companies went on direct liquidation since 1988.

More than 7,000 depositors had deposited around Rs. 6.1 billion in the two finance companies, the Central Investments and Finance PLC ( CIFL) and the Standard Credit Finance Limited (TSCFL) whose licenses were cancelled by the Central Bank last year.

The repayments to the depositors under the Sri Lanka Deposit Insurance and liquidity support Scheme is now in progress, the Central Bank said in its RTI reply.

The Criminal Investigation Department has filed a case at the Magistrate Court of Colombo against the responsible parties for the failure of the CIFL.

Necessary action has been taken to pay compensation to the insured depositors up to a maximum of Rs. 600,000 for a depositor as per the regulations of the scheme.

Depositors may be able to recover part of their remaining deposits in the process of liquidation of such companies, the bank said.