Lankaputhra Development Bank this week unveiled a 3- month restructuring plan for The Finance Company PLC (TFC) under the stimulus package for finance and leasing companies drawn up by the Central Bank (CB).
At a media briefing, Lankaputhra Chairman A. Sarath De Silva said the number one priority for the Bank, in its capacity as the managing agent of TFC, is to ensure that depositors get legitimate returns of interest and to come up with a structured repayment programme upon maturity of fixed deposits.
He said TFCs balance sheet shows the company is not headed for insolvency but there is a liquidity problem.
Mr. De Silva said certain operations of TFC have been suspended. Staff remunerations, perks and fringe benefits have also been suspended. It’s board of directors has not been dissolved but the CB has stripped the board of some of its powers and decision making capabilities. Mr. De Silva also said any violations of CB guidelines and directions and the law, some of which have been uncovered, will be reported to the relevant authorities.
In addition, he stated there have been some ‘misdirected investments’ contrary to CB guidelines. Lankaputhra is also in the process of examining related party transactions.
Mr. De Silva said TFC is an independent entity of the Ceylinco Group and has a customer base of 100,000, a deposit base of Rs.26 billion with 43 branches and 20 service centres island-wide and employs 1500 people. He said it is too important an instituton to be liquidated and they do not want a run on deposits.
He said the reason people are demanding their money is due to a syndrome of the public believing the company and even Ceylinco Group was ‘too big to fail.’ Mismanagement and misdirection threatens financial stability in Sri Lanka and Lankaputhra was happy to take up the challenge and implement the stimulus package. Mr. De Silva added that Lankaputhra is diversifying into restructuring and will be paid a fee from TFC for its services which he said has not yet been determined.
Mr. De Silva said the restructuring plan is estimated to take three months and urged depositors to have patience. TFC employees have pledged their cooperation and commitment to work seven days a week in order to restore the name and prestige of their company. He added that they are thinking of re-branding the institution although it is not necessary immediately. He explained that using the brand name of Lankaputhra is already restoring some confidence as there has been an 8% growth in renewals and improving daily since they took over as managing agents.
TFC
Key executive of The Finance Company Kamal Yatawara said there has been a problem of a mismatch of cash flow. Short term deposits have been taken and money has been lent for long periods. Correcting that is the main issue, he said. The problem of managing the cash flow is mainly in Colombo and the outer cities. “Customers will get their interest but will have to bear with us for the capital,” he said. Mr. Yatawara added that the renewal percentage of deposits has dropped to between 40 to 50% from 80%.
Mr. Yatawara said the company is looking forward to a new era. “We have made mistakes but that doesn’t mean we can’t meet our obligations,” he said.
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