NBFIs: Mergers on the cards | Sunday Observer

NBFIs: Mergers on the cards

30 August, 2020

The Central Bank (CB) has identified several ailing Non-Banking Financial Institutions (NBFIs) facing severe liquidity issues, affecting its stability, to merge with financially stable and strong institutions under its long term financial sector consolidation program that is being worked out, a top official of the Central Bank said last week.

“We have found the institutions that urgently need to come under the consolidation program to ensure stability in the financial sector of the country,” said Central Bank Governor Prof. W.D. Lakshman.

The Central Bank has been harping on the need to work out a plan to strengthen the non-banking sector for a considerable time recognising that nearly half of the sector face severe liquidity issues.

However, financial sector experts have been saying umpteen times that there is no point in shutting the stable door after the horse had bolted, which was the case with closure of  The Finance Company, a long standing and reputed financial entity in the country.

“The Non Bank Supervision Department of the Central Bank is working on the consolidation program which will be finalised shortly to merge ailing entities,” the Governor said.

Central Bank Deputy Governor H. A. Karunaratne at the monetary policy review meeting last week said the bank has a comprehensive program to help ailing financial institutions which are a burden on the economy.

“Our plan is to consolidate and have mergers between strong and weak entities,” he said.

The master plan to restructure ailing establishments is being finalised and will be presented to the Monetary Board for approval soon,” a senior official of the Central Bank said.

The plan will then be discussed with the stakeholders for approval.

The regulator has been saying that it wants to limit the number of non-bank financial institutions to around twenty from the current 46 finance companies and leasing companies.

The Central Bank also stated that the Micro Credit Act will be replaced with a new Act for better regulation of the microcredit sector.

According to reports, around 175 people, especially women, had committed suicide being unable to repay loans taken from unregulated micro lenders.

The recent death in the North was that of a 51-year old woman who took her life due to threats from a micro lender to repay the loan.

The economy contracted by 1.6 percent in the first quarter this year contrary to the expectations of the Central Bank.

As per the indicators, the adverse impact of the pandemic on economic activity during the second quarter is likely to be substantial. However, it was questioned that the first quarter performance could have been better since the covid-19 pandemic affected the economy in the first quarter for barely 10 days.