Financial Times

CB warns of future scams
 

The CB Governor and Deputy Finance Minister Ranjith Siyambalapitiya Pic. by J. Weerasekera

The Central Bank (CB), in the aftermath of the Sakvithi finance company scam in which depositors lost millions of rupees and revelations of other questionable unregistered finance companies which panicked depositors into demanding their money, warned the public to take heed of its warnings of such spurious institutions.

At a press conference on Thursday, CB Governor Ajith Nivard Cabraal said the scandals were revealed due to the Bank's due diligence and noted that the public's greed for high interest rates led to the situation in which many people have lost money. The CB has been criticised for failing to bring to book many dubious institutions that offer high interest rates to the public for their deposits. The Governor, however said, the Sakvithi issue cropped up because the CB was active. On September 19 of this year, due diligence was done on six institutions, one of which was Sakvithi.

Those institutions were visited by the CB which collected information and compiled into a report by the Director of Non-Bank Supervision. A few days later, the Monetary Board declared them to be illegal and informed the institutions they had one month to rectify their shortcomings and register themselves with the CB, in accordance with the laws.


Sakvithi investors protest. Pic. by Athula Devapriya

"If we had not gone, nothing would have happened," the Governor said. He added that the CB spends Rs.1 million every month on advertising to the public so it is questionable as to how some have said they have never seen the warnings. According to the Governor, banks and finance companies have placed advertisements in the media totaling to over Rs.4.4 billion over the past two years. The Governor warned that higher returns also bring about higher risks and that in the future, the CB will continue to name institutions after performing due diligence. He said the President and the Ministry of Finance are being continually updated on its findings.

Governor Cabraal pointed out that while other countries such as the United States are grappling with bank instabilities, Sri Lanka has been fortunate because of steps taken by the CB. In February 2007, he said the CB issued new provisions for loans as well as bringing about prudential regulations for house properties which were criticized but 18 months later, these decisions are paying off. "We have been able to foresee these problems," he said.

The Governor added that there are already extensive regulations in existence and the CB is in the process of implementing them now. He pointed out that various people have been taking deposits in different ways under the guise of employment or housing construction. New legislation is expected to make it easier to rein these types of scams as well.

The Governor also said that interest rates are kept up when inflation is high according to the CB monetary policy but this does not mean that someone should pay unreasonable rates. Spurious institutions offering anywhere from 48 or 84 percent interest is completely untenable in the present context when normal rates range from 18 to 20 percent.

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