Sri Lanka's ETI Finance able to settle small depositors if liquidated

ECONOMYNEXT - Small depositors of Sri Lanka's ETI Finance who are owed up to 600,000 rupees could be repaid if the firm is liquidated but assets and deposit insurance may cover only up to 65 to 70 percent of all liabilities, the government has said.

ETI Finance owes about 33 billion rupees to depositors but there is a big hole in its balance sheet.

Illegal Accounts

A central bank probe in 2012 had found that Swarnamahal Jewelllers Pvt Ltd, a company, which had no license, was taking public deposits illegally, State Minister for Finance Eran Wickremeratne told parliament.

The probe had also found that ETI Finance, which was a licensed finance company, was keeping a second set of books and taking public deposits which were not disclosed to the central bank.

The illegal and undisclosed deposits had totalled 13.68 billion rupees.

The directors of ETI had asked the central bank to amalgamate the deposits with the licensed firm. The monetary board had permitted it.

On September 14, 2015 the Monetary Board had directed the firm to transfer privately held companies, and asset of directors to cover the liabilities, Wickremeratne said.

Though some assets had been transferred complying with the directions of the central bank to some extent, the directors had failed to fully revive the firm.

Insolvent

On May 22, 2017, the chairman of ETI Finance had informed the central bank that the firm was unable to repay all the money that depositors were demanding back and asked for a state managing agent.

The central bank had then audited the firm and its subsidiaries to see whether a state managing agent can revive the firm.

On January 02, 2018, the monetary board had appointed three retired senior bankers to monitor ETI Finance. The search for a strategic to revive the firm had failed.

The directors had then found a buyer for the related companies. The monetary board had approved the sale of assets for 75 million US dollars.

About 32 million US dollars had so far been received which will be used to settle 10 percent of the deposits from June 05. Another 10 percent will be repaid when the balance 43 million dollars are received.

Swarnamahal Finance will be taken over by the new investors, Blue Summit Capital Management (Pte) Ltd, a Singapore-based investment firm, who will present a business plan to revive it.

The monetary board had ordered directors of ETI to inject another billion rupees to the firm by June 15.

Deadline

The directors have been given time till September 30 to bring in new capital or investors to fill the remaining gap in the balance sheet and business plan to be submitted by June 15.

The central bank had also directed directors not to sell or transfer any private asset without their approval.

If no new investor is brought ETI Finance will have to be liquidated under existing law.

In a liquidation all depositors will get back up to 600,000 rupees of their deposits.

The deposit insurance may bring about 9.0 billion rupees.

Action will also be taken against officers of the firm, who had engaged in illegal activities.

Shortfall

The firm had about 33 billion rupees of deposits. The investor will bring about 11 billion rupees (75 million US dollars). Another two billion may come from selling residual assets.

"It may be possible to raise 65 to 70 percent of the money," Wickremeratne said. "There may be about 30 to 35 percent shortfall."

"The balance will have to be sought from the directors through court proceedings. Since that may take a long time, decision will have to be taken whether balance is repaid by through the taxes raised from other people."

"There is also a view that it is not suitable to take the taxes from other citizens to bailout these companies."

Regulatory Forbearance

While it is not possible for any regulator to eliminate business risks and bank failures, analysts say Sri Lanka's problem is due to discretion and regulatory forbearance where automatic liquidation is not mandatory when assets fall short of liabilities or the erosion of capital.

In the US the problem of regulatory forbearance was solved by the Federal Deposit Insurance Corporation by instituting mandatory liquidation as soon as regulatory capital fall short of a pre-determined floor.

In Sri Lanka finance companies generally have a bigger capital buffer of about 15 percent of risk assets, compared to about 10 percent for banks.

A mandatory liquidation when capital falls below 10 percent will give no discretion for the central bank to delay liquidation in case some assets go bad, and the shortfall to be met by any deposit insurance will be limited to the capital deficit and losses in the forced sale of performing assets.

However due to leverage, the when liquidation is delayed, the capital deficit tends to go up exponentially with each month resolution is delayed. The firm may also have to offer excessively high rates of interest to retain deposits further compounding the problem. Sri Lanka has the additional problem of depositors chasing excessively high rates and not distributing their risk.

Risk and Reward

Old pensioners, who are the people who can take the least risk are among the biggest investors in finance companies. There is lack of awareness that chasing high rewards (high interest rates) also carries more risk.

Sri Lanka started international rating agencies to show risk but despite Fitch Ratings giving a 'CC' rating and withdrawing it new depositors continued to place money in the firm which no longer had a rating.

Janatha Vimukthi Peramuna leader said a businessman he knew had sold a hotel last year and deposited 50 million rupees in ETI last December.

Analysts say rule of rating may also need to be reformed.

No firm that had either public deposits or rated bonds should be allowed to terminate a rating agency unless another agency is also brought in at least a year earlier, they say.

This will bring double scrutiny on any company that is engaging in 'rating shopping' (Colombo/May25/2018)

http://economynext.com/Sri_Lanka_s_ETI_Finance_able_to_settle_small_depositors_if_liquidated-3-10733-17.html

ස්වර්ණමහල් මූල්‍ය සමාගමේ කොටස් ගනුදෙනු තහනම් කෙරේ
July, 2, 2018

කොළඹ කොටස් වෙළෙඳපොළේ බැංකු, මූල්‍ය හා රක්ෂණ කාණ්ඩය යටතේ ලැයිස්තුගත කර තිබෙන සමාගමක් වන ස්වර්ණමහල් ෆයිනෑන්ෂල් සර්විසස් පීඑල්සී හි කොටස් ගනුදෙනු අද (02) උදෑසන සිට අත්හිටුවා තිබේ.

මේ සම්බන්ධයෙන් කොළඹ කොටස් වෙළෙඳපොළ විසින් කියා සිටින්නේ සමාගම් ලැයිස්තුගත කිරීමේ විධානයන් යටතේ එන 7.10.7 (i) 7.10.2 (a), 7.10.5 (a),7.10.6 (a) යන ආයතනික යහපාලන නියාමනයන් සපුරාලීමට සමාගම අපොහොසත් වීම හේතුවෙන් මෙම තීරණයට එළඹ ඇති බවයි.

ඊඒපී සමූහයේ මූල්‍ය සමාගම් දෙකක් වන ETI ෆිනෑන්ස් ලිමිටඩ් හා ස්වර්ණමහල් ෆිනෑන්ෂියල් සර්විසස් පීඑල්සී යන සමාගම් මේ වන විට බරපතල මූල්‍ය අර්බුදයකට මුහුණ පා සිටී. තම තැන්පත්කරුවන්ගේ තැන්පතු මුදල් ආපසු ගෙවීමට නොහැකි තත්ත්වයකට මෙම සමාගම් දෙකම මුහුණ පා සිටින අතර පසුගිය 2018 ජනවාරි මාසයේ පැවති මාධ්‍ය හමුව කදී ශ්‍රී ලංකා මහ බැංකු අධිපති ආචාර්ය ඉන්ද්‍රජිත් කුමාරස්වාමි මහතා මෙසේ කියා සිටියේය.

“මේ සමාගම් දෙකේ සම්පූර්ණ වත්කම් නැති වීමේ ප්‍රශ්නයක් නැහැ. එදිනෙදා සමාගම් දෙක පවත්වා ගෙන යාම සඳහා මූල්‍ය සැපයීමේ අපහසුතාවයක් පමණයි තිබෙන්නේ. මෙය තාවකාලික ප්‍රශ්නයක්. තාවකාලික ප්‍රශ්නයක් නිසා මාස 06 ක කාලයක් අදාළ සමාගම්වලට කල් දීලා තියෙනවා මේක විසඳා ගන්න.“

“ETI සමාගමේ දැනට තැන්පත්කරුවන් 33,000 ක් පමණ සිටිනවා. රුපියල් බිලියන 33.5 ක පමණ තැන්පතු තිබෙනවා. ස්වර්ණමහල් ෆිනෑන්ෂියල් සර්විසස් සමාගමේ 90% ක අයිතිය තියෙන්නේ ETI සමාගමට. ස්වර්ණමහල් ෆිනෑන්ස් සමාගමේ දැනට තිබෙන්නේ රුපියල් බිලියන 2.4 ක පමණ තැන්පතු ප්‍රමාණයක්. තැන්පතුකරුවන් ආසන්න වශයෙන් 2,300 ක් පමණ සිටිනවා.“

කෙසේ වෙතත් එලෙස ලබා දී තිබුණු මාස 06 ක කාලසීමාව මේ වන විට අවසන් වෙමින් පවතින අතර තැන්පතුකරුවන් සම්බන්ධයෙන් සාධනීය පිළිතුරක් ලබා දීමට සමාගම් දෙකම මේ වන විට අපොහොසත් වී සිටී.

2018 මාර්තු 31 න් අවසන් මූල්‍ය වර්ෂය තුළ දී ස්වර්ණමහල් ෆිනෑන්ෂියල් සර්විසස් පීඑල්සී සමාගම රුපියල් මිලියන 65 ක ශුද්ධ අලාභයක් වාර්තා කර තිබේ.

ඡන්ද බලය හිමි සාමාන්‍ය කොටස් 500,000,140 කින් සමාගමේ කොටස් ප්‍රාග්ධනය සමන්විත වන අතර එයින් 90% ක හිමිකාරීත්වය ඇත්තේ ETI Finance Ltd සමාගම් සතුවය.

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Thanks.