Sept 08, Colombo: As another finance company in Sri Lanka facing collapse, country's monetary authority has come forward to rescue troubled finance companies.
Sri Lanka's Central Bank (CBSL) said with a view to sustaining financial system stability and enhancing public confidence in the financial system, the Bank has decided to implement a Liquidity Support Scheme (LSS) for any licensed finance company (LFC) that faces liquidity constraints,to enable them to revive and restructure its operations.
The proposed system will come into operation with immediate effect.
"The liquidity support would be provided via the LSS of the Sri Lanka Deposit Insurance Fund (SLDIF), and would be granted on a case by case basis, after an assessment of the liquidity position of the particular LFC, by the CBSL," the Bank said in a statement released Friday.
The Central Investment Finance Ltd has gone bankrupt leaving over 6,000 depositors in despair and the Central Bank has come under criticism from politicians for not preventing such collapse.
In tandem with the LSS, the CBSL said it may direct the existing shareholders of the LFC to infuse fresh capital, or invite a strategic investor to assume a strategic stake in the LFC through a new infusion of capital, or in certain instances, direct the depositors to convert a part of their deposit liabilities into ordinary shares.
In order to obtain facilities under the LSS, a LFC will be required to submit an acceptable business restructuring plan to the CBSL, and also meet the terms and conditions prescribed by the CBSL, which would include the restriction of transactions with related parties, curtailment of remuneration and incentive payments to the board of directors and key management personnel, reduction of administrative costs, furnishing of acceptable collateral, and submission of periodic reports on the progress of the implementation of the restructuring plan.