Sri Lanka to bring shareholder limits for non-bank lenders

ECONOMYNEXT- Sri Lanka central bank is considering bringing shareholding limits to non-bank finance companies to improve governance, Governor Indrajit Coomaraswamy said, in the wake of several failures.

"We will … consider issuing directions on the ownership limits," Coomaraswamy said presenting a monetary policy roadmap for 2019.

Capital buffers of the finance company sector fell to 11.1 percent by September 2018, from 13.2 percent a year earlier as bad loans increased from 7 percent from 5.7 percent of total loans according central bank data.

Coomaraswamy said the central bank will be "brutal" in taking action when capital fell below the regulatory issue cease and desist orders on deposits and credit, cancellation of licenses and winding up of businesses.

Assistant Governor J P R Karunaratne was quoted in Sri Lanka’s Daily FT newspaper as saying that family controlled finance companies that had failed had misinterpreted regulations to run their businesses.

The central bank is dealing with several non-bank lenders that failed following a period of high inflation, property bubble and loose policy that ended in 2008.

Coomaraswamy this week said that existing shareholder limits in banks will also be tightened further to avoid ownership concentration, dominance in the board, conflicts of interest and risks in related party transactions.

Banks currently have a single ownership limit of 10 percent. (Colombo/Jan04/2019)

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