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May 17, 2019 15:31 PM GMT+0530 | 0 Comment(s)
ECONOMYNEXT- Sri Lanka's central bank will be introducing a 25 percent ownership limit in licensed finance companies (LFCs) following stakeholder consultations on the plan.
"The master plan is intended to bring down the ownership limits to 25 percent within a timeframe of 5 years," Department of Non-Bank Financial Institutions Director W Ranaweera said.
Under special circumstances, ownership limits can be increased to 30 percent.
Planned sanctions for non-compliance will include suspension of business activities and cancellation of license.
"A consultation paper on introducing ownership limits of the LFCs has been drafted with a view to obtain stakeholder obeservations," Ranaweera said.
Those interested can submit views to the central bank until June 14.
The central bank said that a number of LFCs have failed and become almost bankrupt due to mismanagement, with influence of the main shareholder.
This has caused distress to many depositors, the regulator said.
Bad loans in LFCs reached 7.8 percent by end-December 2018, up from 6.31 percent a year earlier.
Currently, in 30 LFCs, more than 50 percent of shares are owned by the main shareholder.
In eight LFCs, more than 50 percent is owned by the main shareholder and related parties.
In two LFCs, ownership is limited to two shareholders.
Only three LFCs have diversified ownership.
However, some LFCs are fully owned by banks, and these would be exempt from the new direction, the central bank said.
Finance companies already in trouble and are being restructured will have to follow such plans instead of the 25 percent limit.
Subsidiaries of other LFCs will be required to merge by end-2020.
Already, banks in Sri Lanka have a shareholding limit of 10 percent, which could be increased to 15 percent with special approval. (Colombo/May17/2019)