Financial Consolidation

Jan 02, 2014 (LBO) – Sri Lanka’s finance companies will be encouraged to merge with each other and banks and outside investors will be invited in a bid to strengthen capital deficient ones, Central Bank Governor Nivard Cabraal said. The regulator would like to see 58 non-bank financial institutions consolidated into 20 larger ones, he said, delivering an annual road map for monetary policy.

Multiple finance companies under one holding company and those in groups with banks will also be encouraged to merge.

Smaller banks can boost their assets by merging with subsidiary finance companies, Cabraal said. Banks were also asked to merge with each other to have assets of at least a 100 billion rupees.

Larger financial firms with better capital buffers will be better able to withstand economic shocks, he said.

By June 2014 a group could operate only one non-bank financial institution.

Directors who own controlling shares in more than one NBFI have to arrange a merger between them by June 2014.

Investors or banks are expected to absorb non-bank financial institutions with negative net worth by December 14. Others to be completed by 2015.

Cabraal said investors bringing in funds to boost capital of such