Stunning revelations in COPE report :

Milinda Moragoda's Mercantile Credit owes Central Bank over Rs.4.7 billion
 

by Bharatha Malawaraarachchi and Ranil Wijayapala

In a detailed report presented to Parliament, the Committee on Public Enterprises (COPE) yesterday revealed the financial manipulation and violation of accounting principles by Mercantile Credit Limited and the failure of the Central Bank to control such misdeeds.

The report stated that UNP MP Milinda Moragoda is one of the directors of the Mercantile Credit Ltd (MCL) which owes Rs 4.7 billion to the Central Bank (CB) as at December 31, 2004.

"Out of the total due to the CB amounting to Rs 7263.3 million by 13 defaulted finance companies, more than 60 per cent is due from MCL," COPE's Chairman and Minister of Advanced Technology and National Enterprises Development Rohitha Bogollagama told Parliament yesterday presenting the COPE's second report (first session) in the 6th Parliament.

COPE has recommended the creation of a special independent unit to undertake all actions to be pursued against subsidiaries of MCL and related companies.

He said the CB has failed to recover the refinance facilities provided to 13 defaulter Finance Companies during 1998 to 1994. "While the total advances made to these companies amount to Rs 2.7 billion, the total outstanding balances as at December 31, 2004 amount to Rs 7.3 billion."

Bogollagama said the COPE carried out a detailed review on the Mercantile Credit Ltd since the amount advanced to this company alone amounts to Rs 1.7 billion (63 per cent of the total advances made) and the amount outstanding amounted to Rs 4.7 billion (64 per cent of the total outstanding) as at December 31, 2004.

Although Minister Bogollagama declined to reveal the names of MCL directors, he was compelled to do so by the opposition UNP.

After Bogollagama completed his brief statement, UNP MP John Amaratunga said this was a very important report. "The Parliament has the sole authority over public finance and those activities are handled through the Central Bank. Action should be taken to prevent malpractices and the Central Bank should perform in a proper manner. Therefore, this report should be further discussed."

At this stage, UNP MP Dr. Rajitha Senaratne intervened and requested to present the names of directors of those companies which have defaulted the CB. Chief Government Whip and Minister Jeyaraj Fernandopulle also insisted that names should be revealed and held the view that a separate debate should be conducted on this report.

The COPE report stated that the total amount recovered from MCL to date was only Rs 121.4 million against the advances made amounting to Rs 1.7 billion. Not even 7 per cent of the advances made have been recovered. Further only a sum of Rs 13 million has been recovered from the monies that have been extended to the subsidiaries of MCL.

The COPE report also noted that the MCL was owing substantial sums of monies to the two other State banks namely People's Bank and Bank of Ceylon. The debtors list of the Bank has reflected the same directors of MCL.

Nihal Jayawardene and Mrs. Neeliya Perera are the other directors of MCL. Bogollagama explained that COPE in a detailed examination held at seven meetings examined the CB in particular, the supervision over finance companies, bank supervision and issuance of banking licenses and general financial performance.

"The committee has identified several areas of managerial deficiencies on the part of the CB," he added. The COPE has identified areas where the CB has failed in its responsibilities.

Among them are; lack of proper scrutiny in relation to companies in finance business on a regular basis, failure of the CB in the exercise of due diligence in granting banking licences to the same individuals who have been associated in failed companies in finance business, failure to recover advances granted to such companies at the appropriate times etc.

COPE also noted that CB has failed to adopt suitable measures and actions to deal with individuals who have been responsible for such failures and take proper legal action connected therewith.

Referring to a report by Coopers and Lybrand Associates (C&L), COPE states that MCL has declared dividends at a modest rate of 25 per cent while factually there was a financial loss heading towards a virtual bankruptcy.

It also states that the CB has not properly reviewed the financial position and financial results of MCL regularly. Besides, the CB has gone to the extent of issuing licenses to operate commercial banks to the very directorate of MCL violating the criteria set out for issuance of banking licenses.

COPE has recommended that immediate action be taken to expedite recovery of advances made to failed finance companies.