20 out of 42 licensed finance companies face liquidity issues
View(s):Some 20 out of the 42 licensed finance companies in Sri Lanka are presently facing liquidity issues, with some of it at a high level of distress with high percentage of non-performing loans.
These 20 non-bank financial institutions are facing difficulties at present, the Central Bank (CB) announced.
CB Deputy Governor H A Karunaratne told a media conference on the Monetary Policy Review in Colombo that the management of several licenced finance companies made a request from the CB to grant them a moratorium to repay their bank borrowings.
These finance companies came under pressure as a result of asset quality pressures stemming from a challenging operating environment and declining profitability due to higher funding and credit costs, financial analysts said.
The non-banking financial sector has been affected due to slowdown in the vehicle financing segment following the increase in import tariffs, imposition of lower allowable loan-to-value ratios coupled with a high interest rate environment.
These companies need capital infusion and it should maintain strict financial discipline to avoid liquidity issues, they added.
Answering a question raised by a journalist, Mr. Karunaratne said that the CB had no option other than canceling of the license issued to The Finance Company PLC (TFC) as it has failed to find a suitable investor to infuse capital.
The repayments to the 135,000 small depositors out of the total number of 145,000 depositors with a deposit of Rs.600.000 or less could be settled under the Sri Lanka Deposit Insurance and liquidity support Scheme, he added.
Although issuing a notice of cancellation of the license issued to TFC by letter dated October 23, 2019, the CB is still to cancel the license of TFC as it is waiting for the government’s decision of a solution with regard to the company, he said.
It has notified that TFC could tender its objections, if any, in writing to the CB against this notice of cancellation within 30 days of the date of the letter.
The decision on the actual cancellation of license would depend on whether the objections provide sufficient and substantial grounds for the CB to withdraw the notice of cancellation of the licence, the CB announced earlier.