Restore stability in sick financial entities, says TFC Employees’ Union | Sunday Observer

Restore stability in sick financial entities, says TFC Employees’ Union

16 February, 2020

Financial sector stability has been shaken by statements made by the regulator regarding sick financial entities in the country without naming and taking stringent measures to revive and restore financial stability in them, said members of The Finance Company (TFC) PLC Employees’ Union at a media briefing to make known the plight of the depositors and the employees of the company last week. “The Central Bank (CB) official who made a statement about 20 financial institutions that are facing liquidity issues should have named them and initiated action against such institutions at the outset instead of waiting until journalists questioned him, to make a statement,” TFC Employees’ Union President Duminda Tillekeratne said.

At the last Monetary Policy Review media briefing, Central Bank Deputy Governor H.A. Karunarathne said that 20 of the 42 finance companies in the country are in a severe financial crisis.

“Due to this statement depositors have panicked and started to withdraw their funds without knowing which companies are at risk,” Tillekeratne said, adding that TFC is in the current predicament due to the failure of the regulator to revive the pioneer financial institution.

TFC PLC is the oldest finance company in the country with a history over 80 years. The value of the money in Fixed Deposits and Savings are around Rs. 26 billion.

Following the financial crisis in 2008, the management of TFC was brought under the purview of the Central Bank and for the past 10 years the company was managed by a board of directors appointed by the Central Bank.

“When TFC was brought under the management of Central Bank in 2009 the total assets of the company was Rs. 36.7 billion and liabilities were Rs.35.54 billion with a positive value of Rs. 1,427 million. However, pursuant to the control and supervision of the regulator the total net assets of the company declined to around Rs. 9.5 billion making liabilities exceed assets,” employees said.

They said the company was subject to frequent on site supervision and thereby monthly and annual reports were submitted to Central Bank to monitor the financial status of the company.

“Upon the written request of the executive directors of TFC, a promotion was held in January 2019 and Rs. 946 million worth of new deposits were brought it. The company could not even pay one month’s interest on the said deposits,” a Union employee said.

As the Central Bank had been confirming the credibility and stability of the company around 75 percent of the deposit holders continued to maintain their deposits at TFC.

“Despite the intervention, the Central Bank appointed board failed to secure an investor to revive the company all these years,” TFC Union employees said.

The Central Bank initiated regulatory action against TFC on February 15, 2019 prohibiting withdrawals and the issuing of loans.

“Around 60 percent of the depositors are senior citizens who depend on the interest of their deposits. Now they are in a worse predicament as they are forced to live their retirement in anxiety,” a senior citizen and depositor said.

The Central Bank senior official said around 94 percent of the depositors whose deposit value is less than Rs. 600,000 are covered by insurance and settlements would be made upon liquidation of the company.

According to the Union, only Rs. 11 billion will be provided through the Insurance Liquidity Support Fund which covers around 42 percent of the deposits. The rest has to be covered by the sale of assets of the company.

Senior Economic Advisor to the Prime Minister, Ajith Nivard Cabraal at a meeting with, Central Bank directors, the management of TFC and deposit holders last month, had said the policy of the government is not to close down companies of this nature and assured that a proposal to revive TFC will be presented before January 30 with the consent of the Prime Minister and the President. “So far there has not been a response to our plea and what disturbed us was the statement of the Central Bank official that the company would be liquidated after a decision had been made by the Finance Ministry,” a Union employee said. However, when TFC Union employees called for a meeting with the Prime Minister’s advisor on February 5 to seek clarification on the statement of the Central Bank official Cabraal had passed the buck to the Central Bank.

“If the Central Bank wanted to close down the company it should have done so in 2009 where the company’s assets were at a positive value. If that was done, depositors and even shareholders could have been properly paid and settled.

It is unfair that depositors have to suffer due to the wrong decisions of the Central Bank. We are awaiting a positive response from the authorities to revive the company and safeguard the hard earned money of the depositors,” TFC Union employees said.