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Sri Lanka Equity Forum » Stock Market Talk » Central Bank to the rescue

Central Bank to the rescue

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1 Central Bank to the rescue on Wed Oct 19, 2016 8:20 am

PrasannaMani

PrasannaMani
Manager - Equity Analytics
Manager - Equity Analytics
[size=32]Central Bank to the rescue[/size]
2016-10-19 00:04:19
     

  • Four financial institutions to be covered
  • Rs. 16.5 bn to be disbursed through cash and government securities
  • Repayment of deposits and investments to  commence beginning  2017 
  • The companies will be dealt with through applicable laws for liquidation when repayment plan legally finalized

The Central Bank of Sri Lanka (CBSL) will dole out nearly Rs. 16.5 billion through cash and government securities for investors and depositors of four fraud-ridden finance companies starting from next year.
According to a CBSL statement, the Monetary Board that governs the monetary sector had approved the plan after concluding that there was no room to revive these companies. “The Monetary Board is of the view that this is the only option that now remains as there are no assets in these companies and no investors have been willing to revive these companies and repay (their) depositors and investors,” it said.
Accordingly, the 11,878 depositors of Standard Credit Finance Ltd., City Finance Corporation Ltd. and Central Investments and Finance PLC that faced bankruptcy in 2008 and 2009 due to fraud and mismanagement would be repaid Rs. 4.87 billion.


Further, repayments will occur for Rs. 3.1 billion in investments linked to government securities of 107 investors in the primary dealer Entrust Securities PLC which had defrauded customers by misusing their funds intended for investments in government securities.
The 24 individuals and companies which had placed unsecured investments of Rs. 8.51 billion in Entrust Securities would be compensated by means of allocating them government securities.
“The Monetary Board approved to repay deposits and investments annually commencing from 2017 over a reasonable period of time with a fair interest rate during this repayment period,” CBSL said.
It added that a repayment plan would be implemented with the managing support of Seylan Bank PLC, in the case of Entrust Securities, and that the four companies would eventually be liquidated.
“The Central Bank will complete the required administrative procedures and communicate details to all those depositors and investors. Once the repayment plan is legally finalized, those companies will be dealt with through applicable laws for liquidation,” CBSL said.


The regulator rebuked the investors and depositors of the 4 companies, saying that investing and depositing funds in such companies should be done after considering the risks and returns as well as the profiles of such organizations, even if they were being regulated by CBSL.
“Even large depositors and investors have been negligent in not undertaking the normal due diligence on risks and returns, despite being sufficiently knowledgeable and skillful to do so,” it said.
The 2016 budget had proposed to make all deposits at finance companies be provided a Central Bank guarantee.

New Enforcement Division to tackle rule breakers
In the face of such lapses in the non-banking financial sector, CBSL said that it would improve its regulatory and supervisory capacities and set up a new Enforcement Division to institute legal action against rule breakers in finance companies.
“The Central Bank will set up a new Enforcement Division in the Department of Supervision of Non-bank Financial Institutions to institute legal action against directors and managers who have been responsible for the frauds and misappropriation of funds and to make every effort to recover such funds from them,” CBSL said.


It added that the Enforcement Division would also monitor all existing finance companies for any fraudulent activities and bring them to book.


CBSL said that it was already acting in concert with law enforcement agencies to bring legal action against the management and directors of Entrust Securities.
“Further, action will be taken to address lapses in the Central Bank and to strengthen regulatory and supervisory mechanisms on a priority basis to ensure the safety and soundness of existing institutions,” it added.

2 Re: Central Bank to the rescue on Wed Oct 19, 2016 9:36 am

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
"The 24 individuals and companies which had placed unsecured investments of Rs. 8.51 billion in Entrust Securities would be compensated by means of allocating them government securities."

8.5 billion by 24  ?  

Most probably big influential people are in the list and now they are going to pay themselves using public funds.


“Even large depositors and investors have been negligent in not undertaking the normal due diligence on risks and returns, despite being sufficiently knowledgeable and skillful to do so,” it said.

So general public is penalized for the  lazy negligence of those billionaires .

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