The Finance PLC, a member of the Ceylinco group which pioneered the finance company business in Sri Lanka, has reported to shareholders that the company had lost Rs.1.5 billion in the six months ended September 30, 2009 with the net assets of the company wiped out and a net liability of Rs.50.2 million remaining in its books as at that date.

The company, now managed by the Merchant Bank of Sri Lanka, had to contend with unprecedented withdrawals of deposits following the collapse of Golden Key as well as adverse conditions in the real estate and property development markets, a key business area of The Finance, shareholders have been told.

Several reasons for the cause of this loss have been set down by the directors. They are:-

* Interest rate mismatch due to fixed lending rates of contracts which prevented adjusting the rising cost of borrowing, has resulted in a negative net interest income. Hence no cushion was available to cover the overheads of the company.

* Adverse market conditions in the real estate and property development market has resulted in a lower yield and slow movement on real estate and property development products.

* Unprecedented deposit withdrawals and a significant decline in new deposits owing to the crisis in The Golden Key Company.

* Legal impediments on the transfer of assets of Ceylinco Group adversely affected the income from leasing and hire purchase of motor vehicles during the first nine months of 2009.

* Higher provisioning for credit losses on non-payment of installments by customers primarily due to the adverse economic conditions in the country.

* Some of the related companies which performed well earlier faced difficulties due to the adverse conditions faced as a result of the crisis in the Ceylinco Group and were unable to service their loan repayment to the company and as a result the company had to make a provision of Rs.334 million.

* Curtailing of banking and other financial facilities extended to the company by financial institutions as a result of crisis in the Ceylinco Group.

The Board has proposed that a series of measures be implemented to prevent any further loss and recoup the loss already incurred. These measures, as stated to shareholders, are:-

* To reduce the rate of interest on fixed deposits on the entire base as at May 31, 2009 to 10% p.a. – 12.5% p.a. with effect from Nov. 15, 2009.

* To reduce the rate of interest on normal and minor savings deposits to 8% p.a.

* To introduce Easy Cash Deposit Refund facility which will gradually reduce the deposit liability in three years.

* To recover the group exposure and wherever possible to obtain assets to the value of the loan granted and thereby reduce the bad debt provision.

* Negotiate with banks to reduce the interest on loans and thereby reduce the financial cost.

* To dispose the land stock of the company taking advantage of the bank lending rates and the upward trend in the property market.

An extraordinary general meeting of the shareholders of the company summoned for December 11 will discuss the Directors Report and consider a resolution to authorize the directors "to carry on the business of the company to the best advantage of all its stakeholders."

The Finance is now run by four Executive Directors although the previous directors, under the Ceylinco dispensation, continue as members of the Board.