Ailing finance companies: CB to strengthen financial position | Sunday Observer

Ailing finance companies: CB to strengthen financial position

1 March, 2020

The Central Bank is taking steps to strengthen the financial position of the twenty financial institutions it referred to earlier, under a resolution plan to prevent them from being insolvent, Central Bank (CB) Governor W.D. Lakshman told Sunday Observer Business on Friday.

“We are monitoring these institutions, which were referred to in the recent past, closely to avert their liquidation,” the Governor said, adding that plans are afoot to consolidate the non-bank financial sector.

Depositors of finance companies panicked over the statement by a senior Central Bank official recently that around 20 of the 40 financial institutions were facing a severe liquidity crisis.

“There is nothing to worry about these financial institutions as action has been taken to ensure their stability. It is only two or three institutions that have got into trouble. One is under litigation and the other is being looked into by the Central Bank,” the Governor said. However, financial sector experts said making statements about risky financial companies does not augur well for the sector which could get into further trouble with depositors panicking.

Former Central Bank Deputy Governor W.A. Wijewardena said such statements shouldn’t have been made as it leads to confusion and added that there should be a resolution plan giving time for weak institutions to improve their capital position and revive operations. The regulator should take them up one by one and deal with them if they fail to meet the regulatory requirements. The Finance Company (TFC) PLC Employees’ Union during a media briefing recently called upon the authorities to revive the ailing institution, the oldest finance company in the country.

“The Central Bank which took over the management of the company when it had a strong asset base in 2009 is responsible for its downfall now,” a member of TFC Union said.

Following the financial crisis in 2008, the management of TFC was brought under purview of the Central Bank and for the past 10 years the company was managed by a board of directors appointed by the Central Bank.

TFC PLC is the oldest finance company in the country with a history of over 80 years. The value of Fixed Deposits and Savings is around Rs. 26 billion.

At the time TFC was brought under the management of Central Bank the assets of the company were Rs.36.7 billion while liabilities were Rs.35.54 billion with a positive value of Rs. 1,427 million.

However, pursuant to the control of the institution by the regulator net assets of the company declined to around Rs. 9.5 billion resulting in liabilities exceeding assets.

They said the company was subject to frequent on site supervisions and thereby monthly and annual reports were submitted to Central Bank to monitor the financial status of the company. The Central Bank initiated regulatory action against TFC in February 15, 2019 prohibiting withdrawals and issuing loans. According to the Central Bank around 94 percent of the depositors whose deposit value is less than Rs. 600,000 will be covered by insurance and settlements would be made upon liquidation of the company.