Public confidence in finance companies has still not been restored following the collapse of the Golden Key Credit Card Company which instigated widespread withdrawals by depositors. Chairman of the Finance Houses Association Shirley Perera told The Sunday Times FT that deposit renewal rates have dropped to 30%, 40% and 50% in some companies from 90%. He said well-managed finance companies are going through a difficult period with increased withdrawals and no new money coming in. “They are going through a crunch,” he said. This has also affected their ability to provide leasing for vehicles due to a lack of surplus funds. Buffer funds are being kept to meet any future or possible withdrawals. He said this will affect the economy in the future.
Mr. Perera said that with the exception of the Ceylinco finance companies, no other companies have taken up the Rs.4.2 billion rupee Central Bank (CB) stimulus package. He said the direct benefit of the stimulus package was selling land to Lankaputhra Development Bank for 67% of the market value. “No one is keen on accepting that proposal,” he said, adding that companies did not want to agree to all the other conditions laid out in the stimulus package. Mr. Perera said companies are trying to get bank facilities restored by organizing a Treasury guarantee but he is unsure if the facility will be made available under the stimulus package.
He added that even the companies which have been taken over by Lankaputhra Development Bank have not repaid their depositors. Their debts have been postponed and they have been given an extension for repayment. Mr. Perera also said the CB has not done anything tangible yet to increase confidence. “It is an unfortunate situation and something should happen immediately.”
A newspaper notice on finance companies by the CB this past week stated that Ceylinco Development Bank Ltd. is undertaking a wide ranging restructuring programme. It has been given a provisional licence to register as a Registered Finance Company (RFC) when certain conditions are fulfilled. It has already changed its name to Citizens Development Business Finance Ltd. and is shortly expected to increase its capital.