The Central Bank will implement a comprehensive plan to deal with the six failed finance companies and actively pursue the revival of those that could be revived with new investment Governor Ajith Nivard Cabraal said launching the “A Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability” on Friday.
He said that steps would be taken to negotiate with potential investors with these companies to bail them out with a comprehensive plan.
Non-Banking Financial Institutions (NBFI) whose finance business license has been suspended or cancelled, are being reviewed to assess the way forward.
“If such NBFI is considered possible to be revived, develop plans to enable infusion of capital investment for revival, subject to a feasible business plan. Subsequently, necessary interventions in the court proceedings based on the respective plans of action too would follow.”
In addition, a Master Plan is on the cards for the consolidation of the financial sector to overcome the longstanding issues in the sector and to support the growth of the economy. “We will also support the efforts to strengthen the financial sector through the introduction of appropriate tax reforms to facilitate non-banking sector consolidation.”
“We encourage mergers and acquisitions as well as new capital infusions to the sector as we aim to have 25 strong NBFIs to comply with the medium-term targets of this Master plan. “We want to ensure that all Licensed Finance Companies are listed at the Colombo Stock Exchange before September 30, 2022.”
Licenses of some authorised money changers were cancelled for non-performance. However, taking into consideration the tourism sector decline CBSL has reactivated their licenses. Despite recording more than USD 500 million per month consecutively from June 2020 till April 2021 of Worker Remittances, he observed that there is a decline in official remittance flows in recent months and attributed this to unofficial forex channels thriving.
“This decline is due to the prevailing large exchange rate anomaly between official and unofficial channels which drives foreign exchange-earners to use unofficial channels. A wide margin between the official exchange rates and the “grey-market” exchange rates could be the major contributing factors for this behaviour and this should be corrected.”
The dwindling number of departures aggravate this decline of foreign remittances. One other key area that would also be looked at is to reduce dependence on state-owned banks to fulfil financial requirements. “For this steps would be taken to encourage State-Owned Business Enterprises (SOBEs) to diversify their borrowing sources, Stop funding of certain losses in SOBEs by state banks and Reduce dependence on state banks to finance petroleum bills as CBSL will fund them.”
Continuing concessionary loan schemes to raise the income level of micro and small-scale entrepreneurs, providing formal financial sector support, whilst generating more employment opportunities among the rural community and reducing regional income disparity too would be a priority.
While improving the business environment for domestic and foreign investors by considering all factors influencing the Doing Business environment, the introduction of an “investor-friendly” budget with a tax structure designed for easy compliance will encourage more investments.
Regional development initiatives will also be continued to promote inclusive growth and the implementation of the first-ever National Financial Inclusion Strategy under the theme of “Better Quality Inclusion for better lives” are on the cards. The Central Bank will continue to take measures through the powers vested under the Banking Act to prevent the general public from investing with prohibited pyramid schemes and other financial schemes.
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