RFCs must manage risks

Governor says supervision prompted corrective action:

Harshini PERERA

The finance sector especially the non banking sector has to reposition itself by avoiding its past lapses in corporate governance and lack of risk management, Central Bank Governor Ajith Nivard Cabraal said.

“When financial companies venture with their businesses and prepare their corporate plans they should be responsible in managing the risks involved,” Cabraal said at the Directors’ Symposium for Registered Finance Companies and Specialized Leasing Companies.

Central Bank Governor Ajith Nivard Cabraal

He said the Central Bank has conducted close and effective supervision prompting corrective action based on an Early Warning System and well articulated internal rating system and risk focused supervision.

The assets of the small, medium and large group of Registered Finance Companies (RFC) grew by 18 percent to Rs 215.9 billion and the asset base of the medium group grew by 33 percent and small group by 55 percent by end of September this year, Central Bank Supervision of Non-Bank Financial Institutions Department Additional Director H M Ekanayake said.

Fourteen RFCs recorded an average asset growth of 56 percent at the end of September this year.

He said the asset base has been increasing at a higher rate in 2010 than in 2009. Five RFCs represent 58 percent of total advances of the sector and 15 RFCs recorded an average growth of 83 percent as at September this year. “Deposits of RFCs have grown by 21 percent over the last year and five largest RFCs represents 58 percent of total deposits of the sector. Deposit base of 15 RFCs increased at an average rate of 77 percent over the last year,” he said.

The total assets of large group Specialized Leasing Companies (SLCs) has increased from Rs 80 to Rs 117 billion over the period of September 30, 2009 to September 30, 2010.

He said eight out of the 21 SLCs are in the category of assets less than Rs one billion.

The RFCs need to increase capital to Rs 500 million by 2015 while SLCs expects to increase capital to Rs 200 million by 2015.

“The total assets and capital funds of SLCs have increased by 26 percent from September 2009 to September 2010 while the total assets of SLCs have grown sharply in the third quarter of 2010,” Ekanayake said.

“RFCs and SLCs need to be strengthened by adopting risk focused regulatory and supervisory system while improving the awareness of the management and strengthen the external audit functions of RFCs and SLCs,” he said.