The Central Bank of Sri Lanka (CBSL) says that eight of the 39 finance companies registered with the Central Bank have been given an extension due to their failure to meet the minimum capital requirements.
Arpico Finance Ltd., Associated Motor Finance Ltd., Bimputh Finance Ltd., Kanrich Finance Ltd., Merchant Bank of Sri Lanka & Finance Ltd., Richard Peiris Finance Ltd., Softlogic Finance Ltd.
The Central Bank of Sri Lanka regulates its licensed finance companies to ensure their stability for the safety of customers through their minimum capital, minimum liquidity and provision allocation requirements, and corporate good governance requirements.
According to the Central Bank, in addition to these eight companies, Nation Lanka Finance has not yet complied with the required minimum capital requirements and has not yet made plans to expand its capital accumulation.
However, the announcement also said that these companies would face significant risks to their depositors due to insufficient capital accumulation.
Therefore, the Central Bank advises the public to be careful about the security of their funds when depositing money in these registered finance companies (LFCs) and to refrain from depositing funds to unauthorized entities and individuals.
Sri Lankan finance and leasing companies are set to face additional pressure to merge as the company sets out to meet its high demand for capital (capitalization) by 2021, the deadline for implementation.
Accordingly, the current fixed capital requirement of Rs. 2 billion for registered finance companies will be increased to Rs. 2.5 billion from January 1, 2021. These companies need to face that increased capital value.
The minimum first tier capital rate to be maintained by registered finance and leasing companies has been increased from 6.5% to 7% from July 1, 2020 and is expected to rise further to 8.5% by July 1, 2021.
Registered finance and leasing companies are required to insure their deposits under the Sri Lanka Deposit Insurance and Liquidity Assistance Scheme (SLDILSS) established by the Central Bank of Sri Lanka.
At present, in the event of suspension or cancellation of a registered finance and leasing company, the deposit insurance scheme will repay the deposit up to a maximum of Rs. 600,000 per depositor.
Central Investments & Finance PLC, The Standard Credit Finance Ltd., The Finance PLC and TKS Finance Ltd. That,. The Central Bank has also stated that depositors will be able to make payments from the proceeds from the sale of their assets after the liquidation of the aforementioned companies.