Amalgamation comes as part of CBSL master plan for NBFI consolidation
By Shenal FernandoThe Central Bank of Sri Lanka (CBSL) has approved the amalgamation of the Commercial Leasing and Finance PLC (CLC) with LOLC Finance Company (LOFC). The Department of Supervision of non-bank financial institutions (NBFIs) had on 21 January granted in principle approval for the amalgamation of LOFC and CLC.The CBSL will be holding a press conference this week to provide an update to the public regarding the current status and the targets under the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector”, a highly placed source within the CBSL told The Morning Business. The source further disclosed that under the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector”, the CBSL will seek to revive and re-consolidate weak and stressed financial institutions that have major capital adequacy and core capital issues. Accordingly, under this plan, the CBSL is hoping to reduce the number of NBFIs in the country from 40 to around 25-30.Both companies had previously announced via a corporate disclosure dated 5 January that the CBSL had directed the LOLC Group to amalgamate the licensed finance companies (LFCs) within the group in furtherance of the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector”.Therefore, in accordance with this direction, it was announced that measures will be taken to consolidate LOFC and CLC, subject to receiving the applicable approvals and in compliance with relevant laws and regulations where the remaining amalgamated entity will be LOFC.CLC issued a further Colombo Stock Exchange (CSE) corporate disclosure on 5 January where it admitted that the CBSL had granted approval in principal on 10 December 2021 for an amalgamation of CLC and Sinhaputhra Finance PLC (SFL) in terms of the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector” and that the remaining amalgamated entity will be CLC. Under this transaction, 54.3 million new shares will be issued to the existing shareholders of SFL upon amalgamation. The proportion of such share issuance will be that for every 10,000 SFL shares in existence, 7,803 new CLC shares will be issued.In addition, to the above confirmed potential amalgamation, the rumour mills have been full of amalgamation rumours linked to several struggling finance companies.As per the CBSL Annual Report of 2020, the LFCs and specialised leasing companies (SLCs) sector recorded sluggish performance, as reflected by the decline in asset base, loans and advances, and deposits, as well as increasing non-performing loans (NPLs) and declining profitability during the year, mainly due to the Covid-19 pandemic-related growth impediments and the lack of public confidence in some weak LFCs.In response, the CBSL implemented several regulatory actions to address these issues including the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector” to avoid the further deterioration of the financial position of LFCs, maintain stability of the sector, and safeguard the interests of depositors.The total assets of the NBFI sector stood at Rs. 1.4 trillion by end-2020, representing 5.9% of Sri Lanka’s financial system.
