Financial Times

Finance industry gathers momentum

By Bandula Sirimanna & Natasha Gunaratne

Registered finance and leasing companies are returning to stability and regaining public confidence at a time when the Central Bank (CB) has also ordered finance companies to list on the Colombo Stock Exchange (CSE) in the next two years to broadbase ownership and be more accountable to the public.
Chairman of the Finance Houses Association, Shirley Perera said companies are improving because the crisis is easing. Companies that were once in a bad position are now managing better. Some companies have not fully started their leasing operations but they are doing some limited transactions, he said.

Director of Non Banking Supervision at the CB S.S. Ratnayake told the Sunday Times FT that finance companies will have to issue shares to a large number of investors although some may try to keep controlling interest. Of the 35 registered finance companis, only six are currently listed on the CSE.
Mr. Ratnayake said companies are required to have a minimum core capital of Rs.200 million.
There are two companies that have not been able to meet that requirement and have been given an extension by the Monetary Board. If companies are not able to fill the requirement, winding up is the last resort, Mr. Ratnayake said.

The new Finance Act which will be introduced shortly is expected to strengthen the current regulations in the industry, Mr. Ratnayake said. Public confidence will build up by strengthening laws. During the first six months of this year, growth in the finance industry decelerated to some extent. Otherwise, he said that during the last five years, the industry had 20% annual growth. This year, there will be a reduction.

According to Mr. Ratnayake, the new Finance Act will have a lot of restrictions on the activities of unauthorized financial institutions. “We have to contain unauthorized activities. What is proposed in the new amendments is to strengthen our regulatory and examination powers and increase the penalties and duration of imprisonment as well as to limit their advertising and publicity,” he said.

Mr. Perera from the Association said most companies feel listing on the CSE will allow them to mobilize funds from the market and result in good transparency. He added that most large and medium finance companies will be able to comply with the requirements although smaller companies may have a harder time. He said the six finance companies coming under Ceylinco Consolidated have shown signs of improvement and some have commenced normal operations.

Managing Director of Central Finance PLC Eranjith Wijenaike said the company is receiving new deposits in all of its 52 branches countrywide and expressed optimism that finance companies will weather the storm with the ending of war in the North and East and the implementation of development projects. He added that due to current challenging macroeconomic conditions, their lending activities have slowed down while vehicle financing has also been affected owing to government taxes. Executive Director of Abans Financial Services Ltd, Kithsiri Wanigasekara said public confidence in registered finance companies is increasing gradually. “This is visible from the extent of renewal of existing deposits and new deposits made by the depositors in recent months,” he said. He further stated that low rates of interest offered by the commercial banks at present is also a key factor that has contributed towards the inflow of enhanced volumes of deposits to finance companies .

Mr. Wanigasekara also noted that it is the sole responsibility of directors to implement good governance practices based on the CB Direction on Corporate Governance to strengthen the stability of finance companies. He also mentioned that having in place a good risk management process and the appointment of independent directors to finance companies can win further public confidence.

Chief Executive Officer of Ceylinco Finance PLC Bede Fernando said the finance industry is facing the challenge of reviving credit growth and with the development programs the situation will improve. As development activities require machinery and equipment, there will be a big demand for leasing and finance institutions in the Northern and Eastern provinces he said.

Mr. Fernando said the downward trend in interest rates (on treasury bills) from a high of 19% to the current 12% favours financial institutions. Recovery of the global economy, especially the regional economy will definitely have a positive impact on financial institutions. He disclosed that divesting of non performing subsidiaries and assets of his company has already commenced and this is part of the drive towards consolidation and improving cash flow.

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