Finance Consolidation

Dec 04, 2012 (LBO) - Sri Lanka will not issue new finance company licenses in the next two years but is urging weaker lenders to consolidate with larger stronger ones, Central Bank Governor Nivard Cabraal said. "The Monetary Board (the Central Bank's decision-making body) has taken a decision not to give new license in the next two three years unless they are absolutely necessary," Cabraal told a forum of finance company executives in Colombo.

"We will encourage mergers and consolidation. Weak companies cannot remain as weak companies.

"If they are weak they will have to be swallowed by the strong.

Or they will have to become strong."

Credit Cycle

People Leasing Company, Sri Lanka's largest leasing company was given a finance company license on the condition that it merges with a smaller firm it had taken under its wing.

Cabraal said the regulator will assist companies which are still weak to put their house in order.

Sri Lanka's finance companies ran into difficulties in 2009 after a prolonged period of loose fiscal and monetary policy which began late 2004, where state spending and credit rose but interest rates were held down, eventually ending in a balance of payment