Grace periods for distressed finance companies don’t yield desired results

– CBSL Governor



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Sri Lanka’s finance company sector needs to consolidate as the country has around 50 finance companies, which should be reduced to a more feasible number of 20, Central Bank of Sri Lanka (CBSL) Governor Dr. Indrajit Coomaraswamy said yesterday during the launch of the CBSL’s monetary and financial sector stability plans.


Coomaraswamy added that there were five distressed finance companies in the country and that previous experience had shown that grace periods given to companies to revive their ailing businesses had not yielded the desired results. In fact, extending time given to organizations had only further aggravated the depositors’ woes, he said.


In a bid to consolidate the sector, CBSL had raised the minimum capital requirement of finance and leasing companies from Rs 400 million to Rs one billion, the CBSL Governor said. In 2019 the minimum capital requirement would be further increased to Rs 1.5 billion and to Rs. 2 billion in 2020, he added.


That increase would lead to the consolidation of the finance company sector and that the finance and leasing companies accounted for 8% of all financial sector assets, Dr. Coomaraswamy said. "The strengthening of the capital position will improve the resilience of existing institutions while encouraging only the more financially efficient and effective companies to remain in the sector. Improved capital positions are also essential for the smooth consolidation of the sector in the near-term through market driven acquisitions or mergers."


 
 
 
 
 
 
 
 
 
 
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