Liquidity Support

Dec 16, 2009 (LBO) – Sri Lanka’s central bank said it will guarantee loans given by banks to registered leasing and finance companies in liquidity trouble, though the assistance would be conditional. The Central Bank quickly moved to act on the finance companies and also took action against directors of the Ceylinco firm.

In providing these guarantees, the Central Bank will assess the need for such guarantees for the applicant RFC or SLC and the quality of assets mortgaged or assigned in respect of obtaining a loan facility.

Registered finance companies (RFCs) and specialised leasing companies (SLCs) come under Central Bank regulation.

“Some RFCs and SLCs have been facing liquidity constraints since early 2009 due to a decline in inflow of new funds and the reluctance of some banking institutions to provide loan facilities to those companies,” the Central Bank said.

“As a result of this new scheme, such RFCs and SLCs will now be able to obtain loan facilities from banking institutions against their assets to enhance their liquidity position and to conduct their normal business operations.”

Sri Lanka’s finance companies faced liquidity shortages after the failure of an unr