- 75% of ETIFL’s total depositors and 89% of SFSP’s total depositors would receive full compensation for their deposits
The Central Bank (CB) yesterday announced the suspension of business activities of ETI Finance Limited (ETIFL) and Swarnamahal Financial Services PLC (SFSP), which were formerly owned by the Edirisinghe family.
“The Monetary Board (MB) of the CB at its meeting held on July 10, 2020, has decided to suspend the business of ETI Finance Ltd (ETIFL) and Swarnamahal Financial Services PLC (SFSP), in terms of Section 31 of the Finance Business Act, No. 42 of 2011 (FBA), with effect from July 13, 2020,” a statement said.
The CB noted that two non-bank financial institutions (NBFIs) have become insolvent, due to various irregularities taken place since 2011.
In 2018, the MB appointed a Panel of Management to oversee the affairs of both companies, after the board of directors and senior management of the respective companies failed to address the liquidity issues in the two firms.
Consequently, ETIFL and SFSP settled 30 percent of the deposits outstanding of each company, by selling their key assets.
ETIFL, being the larger of the two firms, had a massive US $ 100 million hole in its assets and liabilities and SFSP had a Rs.1.2 billion hole in its assets and liabilities.
Despite several attempts, the CB noted no viable investor came forward with a proposal to revive the two firms.
“Even though the MB directed the board of directors of both companies to find suitable investors to revive the companies, no viable proposal did materialise. Due to the inability to revive the companies successfully, the financial situation of both companies continued to deteriorate.
As a result, both ETIFL and SFSP are currently not in a position to repay the deposits by themselves, irrespective of such deposits being matured,” the CB said
The CB was planning to move ahead with the liquidation process of the two firms at the latter part of last year. However, the new government, which came into power during the same period, opposed the move.
With the suspension of the business of ETIFL and SFSP, the CB expects to take the necessary actions to compensate the insured depositors under its Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS), up to Rs.600,000 per depositor.
Accordingly, the CB noted that 75 percent of the ETIFL’s total depositors (28,554 depositors out of 38,111 total depositors) and 89 percent of the SFSP’s total depositors (7,802 depositors out of 8,726 total depositors) would receive the full compensation for their deposits.
Meanwhile, the Supervision of Non-Bank Financial Institutions Department of the CB is shortly expected to issue notices of suspension of Certificate of Registration of ETIFL and SFSP as registered finance leasing establishments in terms of Section 9(1) of the Finance Leasing Act No. 56 of 2000, with effect from yesterday.
The CB said that it would inform further actions with respect to ETIFL and SFSP in due course.