Central Bank must take responsibility for debacle of finance companies
The Central Bank of Sri Lanka (CB) regularly advertises the names of finance companies which are registered with it and are lawfully entitled to solicit deposits from the public. By such advertisements the CB explicitly conveys to the general public that monies deposited with such companies are safe because they are under the supervision and control of the CB authorities, whilst implicitly saying that other finance companies are unsafe for the public to trust for deposits. Taking the CB’s assertions into consideration the public is encouraged to deposit monies with finance companies under its supervision and control.
However, even though supervised, controlled, monitored, audited and licences renewed annually by the CB, many finance companies in recent times have gone bust with severe liquidity problems, being unable to return the depositors’ money or continue to honour their commitments to pay the agreed interest payments. A few cases in point are Central Investment and Finance Ltd (CIFL), Ceylinco Investment and Realities Ltd (CIRL), The Finance Co (TFC) and many other companies whose stakeholder identities are shrouded from the public where depositors are put into untold misery, hardship, disappointment, helplessness and hopelessness.
About 4,000 depositors who had reposed trust in the CB and placed their hard-earned money and life-time’s savings in deposits with CIFL are today languishing in misery and squalor having been put into a state of despair and helplessness. Its operations had been in a state of limbo for the last one year and many months before that its monthly interest payments had stopped. The CB’s attempt at resuscitating the company by converting 60 per cent of the deposits to non-voting shares at the stock exchange and 40 per cent to be treated as new deposits with a paltry interest rate of 5 per cent was thwarted by depositors going to courts and obtaining an interim injunction against the move. The directors who are responsible for the collapse of the company are said to be at large, beyond the reach of the long arm of the law.
It would be interesting to note that CB authorities themselves had in 2011 claimed that CIFL’s operations were akin to that of a PONZI scheme, yet they allowed it to carry on regardless.
In the case of CIRL, the CB had made a unilateral decision to convert 68 per cent of deposits to stocks, whilst accounting for the balance 32 per cent as new deposits with an interest rate of 8 per cent in a new company known as Standard Credit Lanka Ltd. This was en masse rejected by the depositors, and even though the company started paying interest at 8 per cent that too had stopped since May 2013. At present the company’s operations are at a standstill, on the pretext of a proposed merger with a bank, whereby its depleted resources are being further eroded for the upkeep of an unproductive staff and office. The distraught depositors have lost hope that the attempt to merge too would fail for the reason that no bank would like the idea of a merger with an insolvent finance company. The mergers are being perceived by the public as an escape route for directors of defaulting finance companies to get away scot-free.
Although revived with much effort, the TFC is continuing to have liquidity problems in their day-to-day operations and the depositors’ woes are unending.
If the CB’s stock-in-trade answer for the malaises of finance companies is to convert a majority of deposits to non-voting shares at the stock exchange and pay a below market interest rate for the balance, then a serious question mark hangs over its professed ability to supervise and control the non-banking financial institutions of the country coming under its purview. The CB authorities had turned a blind eye to the mismanagement of these finance companies over the years even though it had renewed the annual licenses despite there being huge mismatches between assets and deposit bases and evidence of money being siphoned-off by directors. If dubious means had been adopted to defraud the company it should have come to the attention of CB authorities if they had exercised proper supervision and control over the affairs of the companies. If the directors went on fleecing the company by doling out depositors’ money at will to their favourites and eventually classify them as unrecoverable losses, or shown inflated values for assets acquired for lesser value, then what did the controlling body do about it? It is not for the depositors to scrutinize the books and advise directors how to manage the business. For what use is a controlling body if its raison d’etre is in question?
Why these were not looked into and wrongdoers not taken to task creates an element of doubt in the minds of depositors as to whether CB had in fact colluded with the wrongdoers. Was that the reason why it hurried to bury the past and restructure companies with remaining money? If the CB did its job well by monitoring the affairs of the companies and scrutinizing their balance sheets on a regular basis, this problem would not have arisen and the depositors would not be in this predicament and miserable situation today. This situation is likely to have a domino effect on all finance companies catalysing a collapse due to loss of confidence by the public.
By its own admission the CB is not going to take responsibility for the collapse of any finance company under its supervision and control in spite of not meeting any regulatory requirements. This is a good eye-opener for the public to ponder whether any licensed non-banking financial institution in the country recommended by the CB is worth trusting and placing money in deposits.
Nihal Fernando,
Moratuwa.