Finance companies only have to maintain a minimum capital requirement of Rs. 250 million compared to licensed commercial banks which have to maintain Rs. 2.5 billion. This is despite finance companies lending to a riskier clientele.
Finance companies also did not have to report asset quality or publish financial statements, a further hindrance to effective public awareness. Additionally, while there are 35 registered finance companies locally, only 27 are compliant with Central Bank of Sri Lanka (CBSL) regulations, a potentially problematic.
Further, there is a "no man's land" when it came to regulation of the country's debt market including commercial paper, promissory notes, debentures and securitisation. Neither the CBSL nor the country’s Securities and Exchange Commission oversees this Rs. 30 billion area and urgent attention has to be paid to it.
These points were made by the local Country Head for Fitch Ratings, Maninda Wickramasinghe, at this week's 7th LBR-LBO Chief Financial Officer Forum, which was held on the topic of "Building Trust in Financial Institutions to Prevent Future Market Failures"; where he was joined by fellow panelists CBSL Assistant Governor P. Samarasiri, Lanka ORIX Finance Chief Executive Brindley De Zylva, Deputy General Manager (Risk Management), Hatton National Bank PLC (HNB) Dilshan Rodrigo and Nithya Partners Law Expert Naomal Goonewardena.
According to Mr. Rodrigo, only 40% of the local population borrows from the country's formal financial sector. He recommended that all deposit-taking institutions be regulated including those involved in housing, construction, etc.