Presidential Commission on failed finance cos.

By Natasha Gunaratne

A Presidential Commission of Inquiry has been appointed to probe into failed finance companies with retired Supreme Court Judge Priyantha Perera chairing the Commission.

The other members are Faisz Mustapha, Eastman Narangoda and Ajith Ratnayake.

In a newspaper advertisement, the Commission announced it would 'examine the individual conduct for the deficiencies associated in connection with the items highlighted in the COPE (Parliamentary Committee on Public Enterprises) report, dated June 22, 2005, by relevant officials of the Central Bank of Sri Lanka (CBSL), who have been in charge of the regulation and supervision of banking and non-banking financial sectors during the period 1991 to 2005.'

Justice Priyantha Perera, speaking to The Sunday Times FT on the establishment of the Presidential Commission, said 'the government wants to find out who is responsible' for the failed finance companies.”

He said they are trying to determine if Central Bank officials are guilty for the lapses or if company directors of the failed finance companies are at fault.

"We want to find out what has gone wrong and to give recommendations to ensure that such recurrences are prevented." Justice Perera said thousands of people have been adversely affected by this and have been left 'high and dry.' He said that at this point in time, the government thinks it is good to deal with the matter.

The public notice, which calls for representations, said the Commission is 'to make recommendations for action to be taken against Directors of such FFC's for mismanagement of companies and misappropriation of funds, if any' and 'to make specific recommendations for remedial measure with reference to any matter that has surfaced during the inquiry.'

COPE report

The Second Report of the Committee on Public Enterprises (COPE) contains observations and recommendations on the COPE examination on the performance and current affairs of the Central Bank of Sri Lanka (CBSL).

The report states that COPE has considered the responsibilities of the CBSL, the quality of performance in terms of its co-business, responsibilities associated in maintaining a proper banking and monetary responsibility to the country.

The report 'engages primarily key sectors in relation to deviations, violations and lack of proper accountability associated in the functions and responsibilities of the CBSL particularly with regard to the supervision of banking and credit lending institutions.' COPE identified the following areas in the banking and the credit institutions, where the CBSL failed in its responsibilities. The report states there was a lack of proper scrutiny in relation to companies in finance business on a regular basis.

Also, the report cites a failure of the CBSL in the exercise of due diligence in granting banking licenses to the same individuals, who have been associated in the failed companies in finance business.

COPE contends the CBSL failed 'to recover advances granted to such finance companies at the appropriate times and a failure to adopt suitable measures and actions to deal with individuals who have been responsible for such failures and take proper legal action connected therewith.

Furthermore, the report says the CBSL has failed 'in paying due attention to administration and management of finance companies, that have been brought under its purview.

Finance companies
The report states that the CBSL has 'failed to recover the refinance facilities provided to 13 default finance companies during 1988 and 1994. While the total advances made to these companies amount to Rs.2.7 billion, the total outstanding balance as at 31 December 2004 amounts to Rs.7.3 billion. The top five failed finance companies cited in the report are Mercantile Credit Ltd, Union Trust & Investment Ltd, House & Property Traders Ltd, Translanka Investments Ltd and Home Finance Ltd.
The report states that a detailed review on Mercantile Credit Limited was carried out since the amount advanced to this company alone amounts to Rs.1.7 billion (63% of the total advances made) and the amount outstanding amounted to Rs.4.7 billion (64% of the total outstanding) as at 31 December 2004. (NG)

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