CB to work closely with troubled financial institutions | Sunday Observer

CB to work closely with troubled financial institutions

8 March, 2020
H.A. Karunaratne
H.A. Karunaratne

The Central Bank (CB) will work closely with all troubled financial institutions on a three to six month company specific program to restore stability and put them back on track, said Central Bank Deputy Governor H.A. Karunaratne on the sidelines of the second Monetary Policy review media briefing of the year on Thursday. He said the Central Banks will help these institutions to fall in line with the guidelines given by the Finance Ministry to revive ailing financial sector institutions which are facing a liquidity crisis.

“We have given a yardstick for these institutions to work on and if they fail, time will be given under a resolution program to revive them,” Karunaratne said. President Gotabaya Rajapaksa appointed a commission to look into the sale of assets of ETI Finance Ltd. to a consortium involving foreign investors.

“We are yet to see a prospective investor to pump in capital to revive TFC and certain other establishments,” Karunaratne said when asked about the future status of these institutions now on the brink of closure.

The CBSL issued a notice of cancellation of the licence granted to TFC to carry on finance business under the Finance Business Act No. 42 of 2011 (FBA) on October 23, 2019. The CBSL also informed that in terms of the provisions of the FBA, the company has the right to submit an acceptable proposal for investment in TFC along with proof of funds for capital infusion and a Business Restructuring Plan for the consideration of the CBSL within 30 days from the date of issuance of such notice.

A senior official of the Central Bank at previous media briefing on the monetary policy referred to around 20 troubled finance companies that are on the watch list of the regulator.

The Governor of the Central Bank W.D. Lakshman warned banks to comply with the lending rate cut to pass on the benefit of the reduction in interest rates to the public.

“We will have a close tab on the banking sector whether they adhere to the revised lending and deposit rates that were introduced at the previous monetary policy review this year,” the Governor said. According to the regulator yet certain banks have not fallen in line with the interest rate revisions despite the repeated warnings.

The Monetary Board of the Central Bank at its last meeting decided to maintain an accommodative monetary policy stance with the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 6.50 per cent and 7.50 per cent. The Board arrived at this decision following a careful analysis of the current and expected developments in the domestic economy and the financial market and the global economy.

Around 30 central banks across the globe have relaxed monetary policy stance due to global growth concerns.

“The escalation of the coronavirus (COVID-19) outbreak to a ‘global health emergency’ and its potential to become a pandemic pose significant threats to global economic recovery in 2020,” a bank official said.

The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development revised down global growth forecast for 2020.

The IMF said the virus will likely cut off 0.1% from global growth, and drag down growth for China’s economy to 5.6% while the OECD lowered global GDP forecast by half a percentage point to 2.4%.

The Central Bank revised down its growth forecast for Sri Lanka from the previous 3.7-5 percent to 3.5 to 4 percent this year. The exact impact on the Sri Lankan economy would depend on the extent of the global spread of the COVID-19 outbreak, its persistence and policy responses of major economies and trading partners.

It said Sri Lanka’s economic links with China could be directly affected as significant volumes of consumer goods, intermediate goods and investment goods are imported from China.