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Restructuring fallen finance companies the only way forward

By Gayani Perera

The country is still recovering from the financial crisis that occurred with the collapsing of certain reputed financial institutes due to their unlawful method of business conduct. The repercussions of this crisis has been extremely grave, where the public has been affected, especially the depositors of these collapsed organizations. As a direct result of this massive fraud, depositors have even paid with their lives, families have been left financially drained, and large amounts of people have lost their jobs. The Sunday Times spoke to Mr. Janaka Ratnayake, Chairman of the Merchant Bank of Sri Lanka (MBSL), to find out about the present situation with regards to this matter and the recent plans the MBSL plans to take in this regards.

"Over the last couple of months we have received thousands of inquiries and letters from helpless depositors seeking some form of solution to their problems. However the dark truth behind this story is the fact that these fallen financial entities have run out of their liquidity and have only their fixed assets. Those segments who have invested in these organizations include the senior citizens, parents who have invested towards their children's education and so forth. Most of these depositors have invested their entire life savings with these financial institutions and have now been left high and dry, which unfortunately is the cold truth.

Mr. Janaka Ratnayake, Chairman of the Merchant Bank of Sri Lanka (MBSL)

The government is also helpless in this situation as this is a problem relating to the private sector and therefore relying on the government to pay off these depositors is not practically possible and unfair to ask. The incident itself is a clear case of public misappropriation of funds and the government is unfortunately unable to bear this cost", says Mr. Ratnayake.

The categories who will directly suffer from this situation include the depositors and investors, employees of these companies as well as the suppliers and contractors of these fallen organizations. The depositors and investors will not receive their money and interest, the employees of these failed organizations will lose their jobs and source of incomes and in addition to this the suppliers and contractors who are the service providers to these organizations will lose their contracts. Whilst this situation is a great loss to the parties concerned it is also a massive loss to the country's economy and money circulation as well.

"When companies that are involved in granting loans, offering hire purchase and leasing services are not functioning effectively the individual parties who have taken services from these companies default on their payments, thereby resulting in the deflating of the stock of these organizations lending portfolios. When this happens these organizations are compelled to utilize whatever payments received to repay as interest or as capital payments. If these organizations are not given a helping hand their projects will come to a stand still and the stock and assets of these organizations will deteriorate day by day and their operations will automatically cease", warns Mr. Ratnayake.

What has so far taken place is also a wake up call for all investors and regulators concerned. The investors themselves are mainly to blame for what has taken place in the industry mainly because it is their responsibility to protect their money. Also it is an accepted phenomenon that higher the return the higher the risk factor is too.

When those individuals or organizations who engage in unlawful activities see the opportunity to raise and misuse public funds at their will, they will use the so called 'Ponsi Theory' to misguide investors.
When asked about the solution to come out of this financial scam that is affecting the entire country Mr. Ratnayake said, "Know is the time that individuals and organizations that are sound and financially stable should step forward and rescue these depositors to some extent. Having understood this national duty we at MBSL took it on ourselves to take the first step forward in this regard.

We have shown this can be done by taking over the restructuring efforts of The Finance Company, the Finance and Guarantee Company as well as the Ceylinco Savings Bank. This therefore is ample proof that if one is committed much can be done to restructure and help out these fallen or sick financial organizations."

According to Mr. Ratnayake the restructuring process mainly involves reducing the vulnerability of a financially fallen company, whilst also continuing its normal business activities. Limiting the lending activities of these companies will result in their inability to pay interest to the depositors, therefore the normal business activities of these organizations should be continued during the restructuring process at all times. The MBSL has always seized opportunities that have been present in the industry, which have been one of the company's key strengths.

At present MBSL manages The Finance Company which is the largest finance company in the country, by reducing its vulnerability and continuing its normal business activities. Currently the MBSL has a Rs. 1 billion collection from The Finance Company where half of this amount is paid off as interest to its depositors. The Central Bank of Sri Lanka has also expressed its appreciation with regards to the manner in which the MBSL has so far conducted its restructuring and managing activities. With regards to its future plans the MBSL will be starting an up market housing complex in the near future in the Jaffna town. In addition to this MBSL will also be opening up a few more branches in Jaffna.

"My appeal to the depositors and investors is have patience with the system and the regulators and wait until the time is right to get back their money. Therefore it is important that these parties concerned should not jeopardize the system and support those parties who contribute towards resolving this issue. Also I would like to take this opportunity to remind the public to learn from unfortunate incidents as such as this and always keep in mind that at the end of the day, you are responsible to protect your own money, and never be misled by organizations that promise quick and high returns", said Mr. Ratnayake.

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