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Finance,
Leasing firms welcome stimulus package
- Reduction
of liquidity rates a relief
-
Opening up of sources of bank funding vital
By
Nizla Naizer
The Registered Finance Companies (RFC) and
Specialised Leasing Companies (SLC) called the government’s
Rs. 4.25 billion stimulus package for the Finance Sector
a welcome proposal at a time where public faith in the
financial system needed a boost. However, the modalities
of implementation were still to be discussed and representatives
of the finance sector stated that a meeting with Central
Bank officials will be held this week to clarify the
modus operandi.
Funding sources released a relief - Finance Companies
Speaking to The Bottom Line, Finance House Association
President, Shirley Pereira said that after the Golden
Key Credit Card Company collapse, public confidence
in the system was waning, but this Stimulus Package
will renew their faith in the financial sector as the
government has identified the issue and has taken timely
steps to assist the sector.
“Not all of our 34 finance corporations are facing
liquidity issues, but the firms that do so will benefit
from the proposed Stimulus Package,” he said. “Currently
the liquidity constraints have stopped many finance
corporations from lending funds and stopping premature
withdrawals. The availability of liquidity will enable
them to lend again.”
He also stated that the take over of real assets proposed
by the stimulus package is a timely suggestion. The
Stimulus Package proposes that the ‘land stock’
which is held by RFCs and SLCs can be sold to Lankaputhra
Bank at 67% of the market value in return for Treasury
Bills/Bonds which can then be discounted in the secondary
markets. “Now is not the ideal time for real estate
projects so this proposal will help many corporations
who have their funding invested in real estate to liquidate
their land stock. Even though there is some apprehension
that 67% value will mean a shortfall in the value of
the asset, liquidity is the more pressing concern.”
He also informed The Bottom Line that the opening up
of bank funding sources through the stimulus package
is a vital and necessary suggestion.”
The eight point stimulus package was constructed by
the Ministry of Finance and Planning after the President
met with the Chairpersons and CEOs of RFCs and SLCs
on January 29 to assure them of the government’s
support and to inquire on the needs of the sector. “We
have always agitated for the reduction in the Liquidity
Reserve Ratio,” Pereira said, “And we are
glad that the rate has been reduced from 20% to 15%.”
Even though there were reservations among the sector
when it was revealed that all RFCs and SLCs had to adhere
to the conditions set out by the stimulus package at
the meeting, further discussions led to the government
officials imposing the conditions only on the firms
that avail the benefits in the package.
Specialised leasing companies call for prudence
The stimulus package is a welcome development because
it is opening up the much needed credit lines for leasing
firms again, however the details of implementation still
need to be clarified Leasing Association of Sri Lanka
Chairman, Prasanna De Silva said.
Speaking to The Bottom Line he added that the leasing
sector in Sri Lanka is not in dire straits. “We
were prudent in our activities and we have not put our
eggs in one basket.” He explained that the average
exposure to clients are less in leasing firms because
instead of having a few large clients they have many
small clients with operations heavily invested in rural
areas through small ticket investments.
“Different companies have different problems,”
De Silva said, “So based on their requirement they
may take advantage of the proposals set out by the stimulus
package. However, a relief to many in the industry is
the opening up of credit lines with the banks that have
previously provided credit. Unlike finance corporations
we cannot raise funds through deposits so bank funding
is vital.”
Specialised Leasing Companies are business entities
engaged in leasing but are not commercial banks, development
banks or financial corporations which can obtain funding
through deposits. There are 11 SLC currently operating
in the country.
The
Eight Point Stimulus Package
1.
An RFC or SLC would be able to sell its land stock,
at a price not exceeding 67% of the market value as
determined by a licensed valuer acceptable to the selected
Implementing Bank.
2. Lankaputhra Development Bank Ltd will be the
Implementing Bank.
3. A government guarantee will be provided for
licensed banks and approved funding institutions in
respect of any facilities to RFCs and SLCs, including
facilities granted in respect of securitisation, to
a value not exceeding the amount availed of by such
RFCs and SLCs as at 30.09.2008.
4. Reduce the liquidity requirement applicable
to RFCs from 15 % to 10% of outstanding time deposits
and from 20 % to 15% of outstanding savings deposits.
5. RFCs and SLCs obtaining the facilities or
concessions under the new scheme, will be required to
meet strict conditions as would be prescribed by the
Central Bank eg. Curtail remuneration and incentive
payments of directors and key management personnel to
prescribed levels, and provide periodic reports to the
Central Bank on the performance and financial status
of the company.
6. The Central Bank will in due course, consider
the release of any funds available in its Medium and
Long-term Credit Fund to support this package.
7. All banks, RFCs and SLCs will be urged to
reduce their lending and deposit rates by two percentage
points in the near future.
8. Take immediate steps to deal with the issue
of repossessed vehicles and equipment in a manner that
ensures that such assets are put into productive use,
preferably by the original owners themselves.
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