Financial sector consolidation on a case-by-case basis - Cabraal | Page 2 | Sunday Observer

Financial sector consolidation on a case-by-case basis - Cabraal

24 October, 2021

The Central Bank plans to revive and re-consolidate weak and stressed financial sector institutions would be done under the ‘Master Plan for Consolidation of Non-Bank Financial Institutions Sector’.

The Bank aims to carry out the task on a case-by-case basis to create a vibrant financial sector.

“We started with Swarnamahal Finance and would  continue the consolidation plan on a case-by-case basis which is a better way to get about the task,” Central Bank Governor Ajith Nivard Cabraal said on the sidelines of the Monetary Policy review media briefing last week.

The Monetary Board of the Central Bank permitted Swarnamahal Financial Services PLC (SFSP) to resume business for six months from October 13. The decision was taken  in terms of Section 31(5)(a) of the Finance Business Act, No. 42 of 2011 (FBA), to explore the possibility of absorbing the Company to the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector”.

The Panel of Management appointed by the Monetary Board (Panel) has been authorised to continue the supervision of Non-Bank Financial Institutions. 

SFSP has not been permitted to carry on any finance business or other business whatsoever, except executing the aforementioned process.

The Central Bank requests the public to refrain from placing deposits or engaging in any other business with SFSP in any manner, other than settlement of contractual obligations to SFSP. All debtors or any other parties who have payables to SFSP are advised to settle their contractual obligations to SFSP on time, only through the bank accounts (Sampath Bank headquarters branch and Commercial Bank Kollupitiya branch) under the name of Swarnamahal Financial Services PLC and maintain records as evidence for all payments, to avoid any possible litigation against them for non-repayment of dues.

The  banking and finance sector regulator  renewed its call for consolidation within the finance sector to address weaknesses and boost resilience in the sector early this year. 

The banking sector comprised 30 banks, 24 Licenced Commercial Banks and six Licensed Specialised Banks.

The ‘Six-month Road Map’ launched by the Central Bank a fortnight ago ensures macroeconomic and minancial mystem mtability’ in the country.

Meanwhile the Central Bank in its recent policy stance stated market interest rates have adjusted upwards in response to the tightening of monetary and liquidity conditions, while credit and monetary expansion remained elevated.

In response to the tightening of monetary policy in August 2021, most market deposit and lending rates have adjusted upwards. Further, yields on government securities witnessed a sharp upward adjustment with the removal of maximum yield rates for acceptance at primary auctions.  Following these upward adjustments, greater stability is expected in market interest rates in the period ahead. Reflecting the increased demand for credit amidst the low interest rate environment, credit extended to the private sector expanded as envisaged during the eight months ending August 2021.  The momentum of credit expansion is expected to continue during the remainder of the year, with the recovery in economic activity and continued efforts to channel credit flows to productive and needy sectors of the economy.

Meanwhile, credit obtained by the public sector from the banking system, particularly net credit to the Government, also increased notably during the eight months ending August 2021.