The Finance Company PLC (TFC), a key member of the Ceylinco group, has posted the biggest lost in its 69-year history with a negative bottom line of Rs.2.56 billion in the year ended March 31, 2009, down from a profit of Rs.662.6 million the previous year.

In a joint statement by its key executives, the country’s oldest finance company which is now being managed under the agency of the Merchant Bank of Sri Lanka, Mr. K.J. Yatawara, Director/Chief Executive and three "key executive" directors attributed the massive loss to a variety of factors – loss of confidence in Ceylinco group companies, adverse market conditions, slump in real estate, high fixed deposit rates and very little new business done in the last quarter of the year under review due to liquidity pressure.

Along with Yatawara, the statement was signed by Mrs. N.C. Rupasinghe, Mrs. V.W. Dissanayake and Mr. T.B. Ekanayake who have been styled as ``key executive directors.’’

They said that the company’s public deposit base which stood at Rs.30 billion on December 31, 2008 was down to Rs.27 billion as at March 31, 2009.

The real estate sector which had been a key contributor to the company’s trading income had slumped 52% while loan recoveries too had been adversely affected by the economic downturn and unsettled conditions in the company in the last quarter of the financial year under review.

"With the appointment of the Managing Agent – Merchant Bank of Sri Lanka PLC which is a subsidiary of Bank of Ceylon, the market perception changed and the confidence of the public has improved in the past few months," they said.

"This has resulted in the company recommencing its business operations and building customer confidence in all areas of operations."

The former directors including The Finance’s longtime Chairman, Mr. Lalith Kotelawala and Deputy Chairman Mrs. Padmini Karunanayake, remain on the board but in a non-executive capacity with effect from March 6, 2009 on the directive of the Monetary Board of the Central Bank.

The Non-Executive Directors are Kotelawala, S.R. Wijesinghe, A.R. Gunewaredena, K.A.S. Jayatissa, T.N.M. Peiris, Ms. M. Sabaratnam and Y.B. Ratnayake.

The directors have reported that the Monetary Board of the Central Bank appointed Lankaputhra Development Bank Limited as TFC’s Managing Agent together with an expert group to look after the affairs of the company from March 19, 2009 to May 21, 2009 at a fee of Rs.2.75 million.

The Merchant Bank was appointed Managing Agents together with the assistance of an expert group with effect from May 22 onwards at a fee of Rs.5 million for the first two months and thereafter at a fee of Rs.3 million per month for a period of 10 months.

The Monetary Board has by a mandate dated September 8, 2009 "approved the absorption of the liabilities of The Finance Property Fund Limited and TFC Homes (Pvt) Limited to TFC amounting to Rs.1.14 billion and Rs.450 million respectively. The transfer of assets of those companies to TFC is in progress.

The next AGM of TFC scheduled for November 19 will among others consider a resolution to re-appoint Kotelawala to the board despite his attaining the age of 70 years on October 29.

The Finance has a stated capital of Rs.410.2 million, capital reserves of Rs.996.9 million and a statutory reserve fund of Rs.659.9 million. It was carrying a loss of Rs.589 million on its balance sheet as at March 31, 2009.

Ceylinco Investment Company Ltd with 37.13% is the biggest shareholder of TFC followed by Pershing LLC S/A Averbach Grauson & Company (15.79%), B.U.I. de Silva (5.43%), Ceylinco Finance PLC (4.51%), J.L.B. Kotelawala (4.03%) and R.M.A.B. Ratnayaka (2.93%).

The Finance in violation of several Central Bank directions

The Finance Company’s auditors Tudor V. Perera & Company, Chartered Accountants have drawn shareholder attention to the fact that the company had been unable to comply with directions issued by the Central Bank under provisions of the Finance Companies Act as disclosed in the accounts.

a) Every finance company shall maintain capital funds which shall not at anytime be less than ten (10) percent of the total deposit liabilities. The company’s capital funds to total deposit liabilities as at 31st March 2009 was 5.46%.

b) A sum equal to not less than 50% of the profit should be transferred to the Reserve Fund where the capital funds are less than 10% of the deposit liabilities. As the company has incurred a net loss of Rs.2,563,400,.716/= no transfer has been made during the year under review, which is more fully described in note 29 to the financial statements.

a) Every finance company shall maintain a minimum holding of liquid assets equal to 15% of the time deposits and certificates of deposits and 20% of the savings deposits whereas the liquid assets of the company as at March 31, 2009, was Rs.515,355,157/= against the requirement of Rs.4,133,057,842/=.

b) Every finance company shall maintain assets in the form of Sri Lanka Government Treasury Bills, Sri Lanka Government securities and Central Bank of Sri Lanka Securities equivalent to 10% of its monthly end total deposit liabilities of the 12 months of the preceding financial year, but reflects a deficit of Rs. 2,484,591,422/- as at March 31, 2009.