Tight and Loose

January 12, 2007 (LBO) – Sri Lanka’s central bank has allowed finance companies to form subsidiaries, raised single borrower limits, but tightened provisioning requirements, the regulator said.

A 40 percent limit on the acquisition of other companies has been relaxed, provided approval is gained from the Monetary Board, the Central Bank.

“What this means is that finance companies would be allowed to form subsidiaries with approval,” Director, Supervision of Non-Bank Financial Institutions said.

“This will be done on a case-by-case basis.
The single borrower limit has been raised to 15 percent of capital funds from 10 percent, while the limit for a group of companies had been raised to 20 percent of capital funds according to the last audited financial statement.

Finance companies will now be asked to make a 50 percent provision for non- performing loans after six months and 100 percent after 12 months, after deducting pledged assets.

Earlier two directions had existed, one of which had allowed finance companies to delay full provisioning for 24 months.

More could be acquired with the approval of the Monetary Board of the Central Bank.

Finance companies woul