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By Ravi Ladduwahetty

The Employees Trust Fund (ETF) is planning to buy the cash starved Merc Bank. The bank is urgently in need of a cash injection of about Rs. 300 million, banking analysts said.

The ETF has been approached for the purchase of Merc Bank due to the latter being cash starved and negotiations have begun, according to authoritative corporate sources.

They attributed the reasons for the take over as the financial scenario of the Bank was bad.

Deposits of the bank were Rs. 670 million while the lending portfolio was Rs. 290 million. The accumulated losses were well over Rs. 300 million. The statutory deposits were Rs. 41 million and the Cash Reserves were Rs. 105 million. Property and plant was Rs. 152 million. Earnings Per Share was minus Rs. 8. Merc Bank has an issued share capital of Rs. 250 million where 25 million shares were issued at Rs. 10.

Financial analysts believe that what Merc Bank needed was a capital injection of around Rs. 300 million so that the performance could be revived and a new lease of life could be offered. They believe that the bank can be turned around as it has advanced banking technology with the future prospects being good.

They also point out that the acquisition of Merc Bank was a good investment from the point of view of the ETF which will also give better opportunities for ETF members. They cited the bank interest margins that Merc Bank would be able to earn in the light of banks buying money at 9 -10 percent and the lending rates at 17 percent, a benefit that will accrue to the ETF members. Corporate sources said that ETF was very serious about bidding for the Merc Bank, but only after a valuation and a due diligence was completed by a reputed firm of Chartered Accountants. It will be then that the offer will be made, and the offer will be made with the knowledge of the Central Bank of Sri Lanka.

Corporate sources also endorsed that the Central Bank will intervene in the affair as was in the case of the National Savings Bank coming to the rescue of the Union Bank, which was faced with a similar situation. Minister of Economic Reforms, Science and Technology Milinda Moragoda, whose family owns a 20 percent stake of the equity said that he was not personally aware of such a negotiation.

Central Bank Governor A.S. Jayawardena said that there had been instances where the Central Bank comes to the rescue of financial institutions which are faced with liquidity and that the CB will certainly look at Merc positively, if a project proposal for the revival of the bank is submitted.

He said that such a proposal had not been received yet.

The Governor said that the statutory requirements have made it mandatory for the Central Bank to recommend such a change of the shareholding on the basis of a cash injection was necessary. The current laws specify that no corporate/ individual could own more than ten percent of a bank.

The laws say that it also requires the approval of the Finance Minister, he said.

ETF Chairman Dinesh Weerakkody was not available for comment as he was overseas.

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