By Uwin Lugoda
2020, a year which has left a trail of death and destruction around the world, recently claimed another victim – The Finance Company (TFC). Following a decision by the Central Bank of Sri Lanka (CBSL), one of Sri Lanka's best-known and oldest finance companies is set to permanently close its doors a mere week short of its 80th anniversary.
On 22 May, TFC was stripped of its license and Certificate of Registration as a Registered Finance Leasing Establishment under the provisions of the Finance Leasing Act No. 56 of 2000, by the Monetary Board of the CBSL. This action was taken after the company failed to bring in an investor to revive itself within the stipulated time period.
The CBSL issued a press release announcing this cancellation, and noted that the company cannot engage in financial business from 22 May onwards as all efforts made to revive the company through different strategies have failed.
“Continuity in current status will be further detrimental to the interest of the depositors and other stakeholders of the company. Further, the depositors of TFC were unable to withdraw their money over the last 15 months,” the CBSL noted.
TFC was Sri Lanka's very first finance company and was formally a part of the Ceylinco Group. The company was set to celebrate its 80th anniversary yesterday (30), and was responsible for introducing some of the most sought-after customer conveniences in fixed deposits rates, savings, personal loans, leasing, hire purchasing, pawning, property development, and real estates to Sri Lanka. Over eight decades it spread its network across the island, opening 46 branches and 12 service centres, spanning across every province.
1940s
On 30 May 1940, TFC became Sri Lanka's first ever finance company and the seventh public company in Sri Lanka to be registered with the Registrar of Companies. The business's main focus was financing of motor vehicles which was a service pioneered by TFC in the country.
1950s
In 1954, the company moved their operations to the heart of the motor trade at that time, No. 121, Union Place, Colombo 2, where it continued to confine itself to financing motor vehicles, and prospered in this new environment for over a decade. This resulted in TFC being able to pay rich dividends to its shareholders, which at times reached as high as 30%.
1960s
The early ‘60s posed as some of the most challenging years for the company, as the Government at the time enforced bans on importations of most goods except essential commodities. Despite this, the company managed to develop itself under the guidance of their Chairman at the time, Senator Justin Kotelawala.
[caption id="attachment_86195" align="alignleft" width="300"]
Under the leadership of the then Chairman, Dr. Lalith Kotelawala, the company launched its fixed deposit schemes, and experienced rapid growth, extending its reach across the island and increasing profitability.[/caption]
In 1968, the company shifted its operations to a fully equipped and modernised office at Ceylinco House, Queens Street, Colombo 1. During this period, under the leadership of the then Chairman, Dr. Lalith Kotelawala, who was the son of its former Chairman Justin, the company launched its fixed deposit schemes, and experienced rapid growth, extending its reach across the island and increasing profitability.
In this decade, TFC also obtained a listing of its ordinary shares from the Colombo Brokers’ Association.
1970s
After Sri Lanka became a republic in 1972, the company managed to harness the unprecedented opportunities provided by the liberalisation of the economy, and diversified its activities and undertook the financing of gems, industrial raw material, agricultural machinery, and other imports.
This period in time also marked the launch of TFC's first branch, which was established in 1976 in Jaffna. Following the enactment of the Control of Finance Companies Act No. 27 of 1979, the company then came under the supervision of the CBSL.
1980s
During this period, the company introduced novel products such as in real estate, easy payments schemes on lands, import financing, and pledge loans to its investment portfolio. Furthermore, they went on to issue worker shares for employees who had completed five years of service.
The ‘80s also marked a time of turmoil for the finance industry. Due to this, at the request of CBSL, TFC took over the failed finance companies such as The Finance & Guarantee Co. Ltd. and Panadura Finance and Enterprises Ltd., and turned them around to be viable, profitmaking ventures within a short time. Later, the company extended its services to include financing of consumer durables.
1990s
In the early ‘90s, TFC became the first company to be registered with the CBSL once it began granting registration to finance companies that satisfied its criteria under the provision of the Finance Companies Act No. 78 of 1988.
During this time, the company also became the first non-banking financial institution to be appointed as a participating member of a loan repayment programme funded by USAID (United States Agency for International Development).
2000s
In 2002, TFC obtained its registration under the Finance Leasing Act No. 56 of 2000 and ventured into the areas of property development, and housing and leasing of buildings and industrial premises.
However, then in 2008 came the famous collapse of the Ceylinco Group. Following these dramatic events, TFC was handed over to the CBSL in 2009, after the company was severely impacted by the failure of a number of financial institutions within the Ceylinco Group. The total assets of the company, which was established over 80 years ago, was tabulated at Rs. 36.7 billion and total liabilities amounted to Rs. 35.54 billion.
Since then, the financial status of the company had been deteriorated gradually, leading to severe liquidity crises, calling for intervention from the CBSL.
2010s
TFC had accumulated losses of up to Rs. 22.2 billion by the end of December 2017 from Rs. 20.5 billion by end-March that same year. During this time, the shareholder funds or equity came down by Rs. 1.6 billion to Rs. 16.1 billion. The company’s losses during the December 2017 quarter were stated to be Rs. 598.2 million expanding from a corresponding quarter loss of Rs. 483.5 million.
By March 2018, the company resorted to disposing of its assets and real estate as a last ditch attempt to revive its fortunes. During this time, the company also called for an expression of interest (EOI) from parties to acquire two international schools it runs. These were two privately run schools, one in Galle and another one in Payagala, by TIS Educational Services (Pvt.) Ltd., which was a 100% owned subsidiary of TFC.
The company later reported a staggering loss for the quarter ended June 2018 of Rs. 743 million. Similar to this, during the June quarter of 2019, TFC posted a Rs. 1 billion loss, with a total accumulated loss of Rs. 28 billion for the firm, by end-June 2019.
On 23 October 2019, CBSL issued a Notice of Cancellation (NOC) of TFC’s license, in order to safeguard the interests of the depositors and other creditors. The statement issued by the CBSL explained that TFC had not found any credible investor to revive the company and the company is incurring a loss of around Rs. 200 million monthly.
[caption id="attachment_61187" align="alignleft" width="300"]
The CBSL said the operation of the company in this manner would be further detrimental to the interests of the depositors and other stakeholders.[/caption]
The CBSL said the operation of the company in this manner would be further detrimental to the interests of the depositors and other stakeholders. Therefore, the Monetary Board with its powers vested under the Finance Business Act decided to cancel the license issued to TFC.
However, upon the request of the company, the Monetary Board allowed TFC to call for a fresh round of EOIs to identify a credible investor with valid proof of funds and a viable business restructuring plan. The company failed to find an investor once again.
TFC also failed to tender a valid objection to the Monetary Board against the October NOC within the time period given to do so. Therefore, TFC’s license was set to be cancelled from 21 December 2019 onwards.
During the press conference to discuss the monetary policy stance by the CBSL in February 2020, CBSL Deputy Governor H.A. Karunaratne told reporters that having failed to seek out an investor who could invest Rs. 25 billion to resuscitate the company, the Bank was moving to wind down the company.
“There are also a large number of depositors who are regularly requesting their funds. When you look at the total picture of The Finance Company, altogether we have 145,000 depositors, out of that 134,000 depositors have funds less than Rs. 600,000, and so if we cancel the license, we can help 94% of the depositors.”
The Monetary Board finally decided to cancel the finance business licence issued to TFC with effect from 22 May, and the company was not permitted to engage in finance business since that date, under Finance Business Act No. 42 of 2011.
Impact on financial system
Speaking to The Sunday Morning Business, former CBSL Deputy Governor Dr. W.A. Wijewardena stated that while TFC is the country’s oldest finance company, they unfortunately got into irregular business activities in the early 2000s. As a result, the company’s asset base became completely eroded and the company went bankrupt by 2008.
“According to the data available in the CBSL, the company siphoned their money into some irregular activities. After which, the company was taken over by the CBSL, and a new management was appointed. From 2008 to 2020, the company was completely under the Central Bank but unfortunately it was not able to make a turn around.”
Dr. Wijewardena explained that during this period, the company did not have enough capital or income, and had no outside investors willing to buy the company by paying out the depositors’ money. He went on to state that the company did not even have enough money to pay salaries at the beginning of this year.
“In my view, it came to a position where the CBSL could no longer keep this company going, and therefore they have rightly decided to write it off.”
He stated that, despite its rich history, TFC is a very small component in today’s financial sector in Sri Lanka, as there are other companies which are doing very well in the sector. Therefore, he expects this to have very little impact on the overall financial system and other finance company businesses.
“The closure of this company may not leave a major dent on the financial system of the country; I also do not think that it will erode the confidence of the people of Sri Lanka.”
However, the closure of the company is said to have caused great concern among depositors of other finance companies as well, resulting in some of them pulling out their deposits from these companies and using them to buy land or vehicles. This could lead to a rise in car and land sales over the next few weeks and months, according to Vehicle Importers Association of Sri Lanka (VIASL) President Indika Sampath Merenchige.
[caption id="attachment_4820" align="alignleft" width="300"]
JVP former MP Sunil Handunnetti called for the Government and the CBSL to come up with a strategy to support the 450 employees and the 145,000-odd depositors affected by the TFC's licence cancellation.[/caption]
However, in a recent press conference held by the Janatha Vimukthi Peramuna (JVP), former MP Sunil Handunnetti called for the Government and the CBSL to come up with a strategy to support the 450 employees and the 145,000-odd depositors affected by the TFC's licence cancellation.
He explained that when the CBSL took over TFC, the company had Rs. 30 billion in deposits, with over 145,000 depositors across Sri Lanka, and out of this, around 94% were people who deposited less that Rs. 600,000. He stated that these were people who most likely deposited their retirement savings and work earnings into the company, and are being severely affected by its closure.
"In the current Covid-19 environment, these depositors are already facing a lot of financial difficulties and can't even fairly protest against this decision taken by the CBSL. Therefore, this decision is similar to kicking a man when he is already down."
Handunnetti stated that when these depositors initially deposited their money in the company, they did so out of trust, which was further amplified by the takeover by CBSL, the state regulator. However, now that the company is being shut down, the depositors are now being put in a desperate situation.
He stated that they believe no matter how justified the reasoning behind the cancellation, the Government and the CBSL should have been more thoughtful of the depositors’ mentality during this pandemic climate.
"We are suggesting that the Government give a better relief package to the depositors, and listen to their issues before making these decisions. But instead, the Government has yet to make any comments on the matter.”
When we contacted State Minister Shehan Semasinghe to get the Government’s views, he stated that leading up to the cancellation of the license, the President and Prime Minister were both involved in the process and looked at all the options available to protect the depositors, which mainly consisted of elderly citizens. However, post cancellation there has been no confirmations on a solution as per his knowledge.
2020, a year which has left a trail of death and destruction around the world, recently claimed another victim – The Finance Company (TFC). Following a decision by the Central Bank of Sri Lanka (CBSL), one of Sri Lanka's best-known and oldest finance companies is set to permanently close its doors a mere week short of its 80th anniversary.
On 22 May, TFC was stripped of its license and Certificate of Registration as a Registered Finance Leasing Establishment under the provisions of the Finance Leasing Act No. 56 of 2000, by the Monetary Board of the CBSL. This action was taken after the company failed to bring in an investor to revive itself within the stipulated time period.
The CBSL issued a press release announcing this cancellation, and noted that the company cannot engage in financial business from 22 May onwards as all efforts made to revive the company through different strategies have failed.
“Continuity in current status will be further detrimental to the interest of the depositors and other stakeholders of the company. Further, the depositors of TFC were unable to withdraw their money over the last 15 months,” the CBSL noted.
TFC was Sri Lanka's very first finance company and was formally a part of the Ceylinco Group. The company was set to celebrate its 80th anniversary yesterday (30), and was responsible for introducing some of the most sought-after customer conveniences in fixed deposits rates, savings, personal loans, leasing, hire purchasing, pawning, property development, and real estates to Sri Lanka. Over eight decades it spread its network across the island, opening 46 branches and 12 service centres, spanning across every province.
1940s
On 30 May 1940, TFC became Sri Lanka's first ever finance company and the seventh public company in Sri Lanka to be registered with the Registrar of Companies. The business's main focus was financing of motor vehicles which was a service pioneered by TFC in the country.
1950s
In 1954, the company moved their operations to the heart of the motor trade at that time, No. 121, Union Place, Colombo 2, where it continued to confine itself to financing motor vehicles, and prospered in this new environment for over a decade. This resulted in TFC being able to pay rich dividends to its shareholders, which at times reached as high as 30%.
1960s
The early ‘60s posed as some of the most challenging years for the company, as the Government at the time enforced bans on importations of most goods except essential commodities. Despite this, the company managed to develop itself under the guidance of their Chairman at the time, Senator Justin Kotelawala.
[caption id="attachment_86195" align="alignleft" width="300"] Under the leadership of the then Chairman, Dr. Lalith Kotelawala, the company launched its fixed deposit schemes, and experienced rapid growth, extending its reach across the island and increasing profitability.[/caption]
In 1968, the company shifted its operations to a fully equipped and modernised office at Ceylinco House, Queens Street, Colombo 1. During this period, under the leadership of the then Chairman, Dr. Lalith Kotelawala, who was the son of its former Chairman Justin, the company launched its fixed deposit schemes, and experienced rapid growth, extending its reach across the island and increasing profitability.
In this decade, TFC also obtained a listing of its ordinary shares from the Colombo Brokers’ Association.
1970s
After Sri Lanka became a republic in 1972, the company managed to harness the unprecedented opportunities provided by the liberalisation of the economy, and diversified its activities and undertook the financing of gems, industrial raw material, agricultural machinery, and other imports.
This period in time also marked the launch of TFC's first branch, which was established in 1976 in Jaffna. Following the enactment of the Control of Finance Companies Act No. 27 of 1979, the company then came under the supervision of the CBSL.
1980s
During this period, the company introduced novel products such as in real estate, easy payments schemes on lands, import financing, and pledge loans to its investment portfolio. Furthermore, they went on to issue worker shares for employees who had completed five years of service.
The ‘80s also marked a time of turmoil for the finance industry. Due to this, at the request of CBSL, TFC took over the failed finance companies such as The Finance & Guarantee Co. Ltd. and Panadura Finance and Enterprises Ltd., and turned them around to be viable, profitmaking ventures within a short time. Later, the company extended its services to include financing of consumer durables.
1990s
In the early ‘90s, TFC became the first company to be registered with the CBSL once it began granting registration to finance companies that satisfied its criteria under the provision of the Finance Companies Act No. 78 of 1988.
During this time, the company also became the first non-banking financial institution to be appointed as a participating member of a loan repayment programme funded by USAID (United States Agency for International Development).
2000s
In 2002, TFC obtained its registration under the Finance Leasing Act No. 56 of 2000 and ventured into the areas of property development, and housing and leasing of buildings and industrial premises.
However, then in 2008 came the famous collapse of the Ceylinco Group. Following these dramatic events, TFC was handed over to the CBSL in 2009, after the company was severely impacted by the failure of a number of financial institutions within the Ceylinco Group. The total assets of the company, which was established over 80 years ago, was tabulated at Rs. 36.7 billion and total liabilities amounted to Rs. 35.54 billion.
Since then, the financial status of the company had been deteriorated gradually, leading to severe liquidity crises, calling for intervention from the CBSL.
2010s
TFC had accumulated losses of up to Rs. 22.2 billion by the end of December 2017 from Rs. 20.5 billion by end-March that same year. During this time, the shareholder funds or equity came down by Rs. 1.6 billion to Rs. 16.1 billion. The company’s losses during the December 2017 quarter were stated to be Rs. 598.2 million expanding from a corresponding quarter loss of Rs. 483.5 million.
By March 2018, the company resorted to disposing of its assets and real estate as a last ditch attempt to revive its fortunes. During this time, the company also called for an expression of interest (EOI) from parties to acquire two international schools it runs. These were two privately run schools, one in Galle and another one in Payagala, by TIS Educational Services (Pvt.) Ltd., which was a 100% owned subsidiary of TFC.
The company later reported a staggering loss for the quarter ended June 2018 of Rs. 743 million. Similar to this, during the June quarter of 2019, TFC posted a Rs. 1 billion loss, with a total accumulated loss of Rs. 28 billion for the firm, by end-June 2019.
On 23 October 2019, CBSL issued a Notice of Cancellation (NOC) of TFC’s license, in order to safeguard the interests of the depositors and other creditors. The statement issued by the CBSL explained that TFC had not found any credible investor to revive the company and the company is incurring a loss of around Rs. 200 million monthly.
[caption id="attachment_61187" align="alignleft" width="300"] The CBSL said the operation of the company in this manner would be further detrimental to the interests of the depositors and other stakeholders.[/caption]
The CBSL said the operation of the company in this manner would be further detrimental to the interests of the depositors and other stakeholders. Therefore, the Monetary Board with its powers vested under the Finance Business Act decided to cancel the license issued to TFC.
However, upon the request of the company, the Monetary Board allowed TFC to call for a fresh round of EOIs to identify a credible investor with valid proof of funds and a viable business restructuring plan. The company failed to find an investor once again.
TFC also failed to tender a valid objection to the Monetary Board against the October NOC within the time period given to do so. Therefore, TFC’s license was set to be cancelled from 21 December 2019 onwards.
During the press conference to discuss the monetary policy stance by the CBSL in February 2020, CBSL Deputy Governor H.A. Karunaratne told reporters that having failed to seek out an investor who could invest Rs. 25 billion to resuscitate the company, the Bank was moving to wind down the company.
“There are also a large number of depositors who are regularly requesting their funds. When you look at the total picture of The Finance Company, altogether we have 145,000 depositors, out of that 134,000 depositors have funds less than Rs. 600,000, and so if we cancel the license, we can help 94% of the depositors.”
The Monetary Board finally decided to cancel the finance business licence issued to TFC with effect from 22 May, and the company was not permitted to engage in finance business since that date, under Finance Business Act No. 42 of 2011.
Impact on financial system
Speaking to The Sunday Morning Business, former CBSL Deputy Governor Dr. W.A. Wijewardena stated that while TFC is the country’s oldest finance company, they unfortunately got into irregular business activities in the early 2000s. As a result, the company’s asset base became completely eroded and the company went bankrupt by 2008.
“According to the data available in the CBSL, the company siphoned their money into some irregular activities. After which, the company was taken over by the CBSL, and a new management was appointed. From 2008 to 2020, the company was completely under the Central Bank but unfortunately it was not able to make a turn around.”
Dr. Wijewardena explained that during this period, the company did not have enough capital or income, and had no outside investors willing to buy the company by paying out the depositors’ money. He went on to state that the company did not even have enough money to pay salaries at the beginning of this year.
“In my view, it came to a position where the CBSL could no longer keep this company going, and therefore they have rightly decided to write it off.”
He stated that, despite its rich history, TFC is a very small component in today’s financial sector in Sri Lanka, as there are other companies which are doing very well in the sector. Therefore, he expects this to have very little impact on the overall financial system and other finance company businesses.
“The closure of this company may not leave a major dent on the financial system of the country; I also do not think that it will erode the confidence of the people of Sri Lanka.”
However, the closure of the company is said to have caused great concern among depositors of other finance companies as well, resulting in some of them pulling out their deposits from these companies and using them to buy land or vehicles. This could lead to a rise in car and land sales over the next few weeks and months, according to Vehicle Importers Association of Sri Lanka (VIASL) President Indika Sampath Merenchige.
[caption id="attachment_4820" align="alignleft" width="300"] JVP former MP Sunil Handunnetti called for the Government and the CBSL to come up with a strategy to support the 450 employees and the 145,000-odd depositors affected by the TFC's licence cancellation.[/caption]
However, in a recent press conference held by the Janatha Vimukthi Peramuna (JVP), former MP Sunil Handunnetti called for the Government and the CBSL to come up with a strategy to support the 450 employees and the 145,000-odd depositors affected by the TFC's licence cancellation.
He explained that when the CBSL took over TFC, the company had Rs. 30 billion in deposits, with over 145,000 depositors across Sri Lanka, and out of this, around 94% were people who deposited less that Rs. 600,000. He stated that these were people who most likely deposited their retirement savings and work earnings into the company, and are being severely affected by its closure.
"In the current Covid-19 environment, these depositors are already facing a lot of financial difficulties and can't even fairly protest against this decision taken by the CBSL. Therefore, this decision is similar to kicking a man when he is already down."
Handunnetti stated that when these depositors initially deposited their money in the company, they did so out of trust, which was further amplified by the takeover by CBSL, the state regulator. However, now that the company is being shut down, the depositors are now being put in a desperate situation.
He stated that they believe no matter how justified the reasoning behind the cancellation, the Government and the CBSL should have been more thoughtful of the depositors’ mentality during this pandemic climate.
"We are suggesting that the Government give a better relief package to the depositors, and listen to their issues before making these decisions. But instead, the Government has yet to make any comments on the matter.”
When we contacted State Minister Shehan Semasinghe to get the Government’s views, he stated that leading up to the cancellation of the license, the President and Prime Minister were both involved in the process and looked at all the options available to protect the depositors, which mainly consisted of elderly citizens. However, post cancellation there has been no confirmations on a solution as per his knowledge.