Recovery In A Year

The country’s oldest finance company, The Finance Company PLC (TFC) which recently faced a run on its deposits, expects to completely lift the strictures it has placed on withdrawals on demand in another year’s time, its director/CEO Kamal Yatawara said.
TFC which currently has a mismatch of meeting its full liabilities, also has put a cap on its deposit rates to tide over its liquidity crisis, at 12% for a one year deposit, with 1% added on to senior citizens.
However, it appears to be getting out of its tight liquidity crisis from this month, with it being able to sell some 30-40 blocks of land in Negombo at some Rs. 125,000 plus a perch. Land stock was not previously moving in the island due to a contraction in demand. TFC has land stock, including commercial property, valued at Rs. nine billion as per current market rates.
It believes that if it could move out 5-6% of this figure monthly, which works out to some Rs. 500 million, that that would solve its liquidity problem. Things may appear to return to normal in another six months time. Yatawara, of the once troubled TFC told The Sunday Leader that at present when a depositor wants to withdraw his capital, such a request is allowed only on a “case by case” basis. A 15% run on the company’s deposit base is enough to cause a liquidity crisis, said Yatawara.
He said that at present when a depositor wants to withdraw his capital, such a request is allowed only on a “case by case” basis.
A central banker recently told this reporter that even the best bank in Sri Lanka would not be able to survive if there is a 20% run on its deposits.
TFC, formerly a Ceylinco company, had a run on its deposits when the Golden Key Credit Card Company, then, one of its associate companies, crashed, in late 2008. As a result, its deposit base which was Rs. 32 billion at its peak dropped to Rs. 25 billion at present.
There is a committee appointed, comprising members of Merchant Bank of Sri Lanka (MBSL), TFC’s managing agents and TFC’s own managers, which give priority for such on demand withdrawals, when it comes to requests such as for medical needs and education.
“If we didn’t check on such withdrawals, the company would have had collapsed, said Yatawara. “Earlier we tried to allow the market to determine our course, that was in December 2008 and January 2009, but there was a run on our deposits amounting to some Rs. nine billion, forcing us to put a halt to that experiment,” he said.
“When we formulated the revised interest rates, rates, industrywide, also started to fall, so, our deposit rates are akin to market rates, and not less,” said Yatawara, who said that the worst of the crisis is now behind them, with real estate and hire purchase (HP),  two of their key areas of business, picking up.
Non performing loans in the real estate sector have come down from 20% to 17%, while that of the HP sector is below the industry average of 6%, he said.
“And in the case of the real estate sector we have the asset,” said Yatawara. That sector is picking up, recently we sold 10 blocks at Madiwela, where each block comprises 10 perches, at Rs. 690,000 a perch, “ he said.
“Last month we mobilized Rs. 220 million worth of deposits, but 1½ years ago the story was different, it was either zero or negative deposit growth,” said Yatawara.
With mobilization and debt collections, our monthly turnover is in the region of Rs. 1.1 billion, he said. “Our liabilities vis-à-vis interest payments are in the region of between Rs. 200-300 million monthly,” he said. A sizeable chunk of turnover is also reinvested.
Thirty seven per cent of TFC’s equity is in the hands of Ceylinco Investments of which half of it is held by MBSL and the balance, allegedly by MBSL’s former chairman Janaka Ratnayake, with those shares in the process of being transferred to MBSL, said Yatawara.
Previously those shares were held by Lalith Kotelawala who virtually transferred those for a song, he alleged. Kotelawala didn’t want TFC to collapse, said Yatawara. A further 12% of the company’s shares are held by its employees.
Prior to the Central Bank bomb blast in 1996 where Kotelawala lost one of his eyes, he used to visit every single TFC branch (there are some 40 islandwide and several other service points) and if collections were lagging, he used to mobilize the staff to go after collections rather than new deposits, said Yatawara.
But after his injury, he appointed deputy chairmen to look after the Group’s various business units, giving autonomy to its managers, the cause of part of TFC’s problems, alleged Yatawara. Among TFC’s debtors are Sussex College which owes it Rs. one billion and Celestial and Trillium Residencies, which also owe it sizeable chunks of monies. All of those, at least in the past, were part of the Ceylinco conglomerate.
But now the Celestial and Trillium projects are being reactivated, while Sussex’s problem (a school catering to the London O’ Level syllabus) was a loss of confidence after the collapse of some of the Ceylinco companies. But a few of those schools are doing well, he said.
Most of the company’s deposit mobilization is from the outstation. With the collapse of a few of the Ceylinco companies it was the “Colombo” depositor who panicked, not the rural depositor, because the former had their fingers of investment, on virtually every pie (such as Golden Key), unlike the rural depositor, he said.
Majority of TFC’s depositors, 50-60% of them, are those whose deposits are valued at some Rs. 200,000 per deposit. Though the company’s performance is improving, it’s still in the red. It is in the process of finalizing its accounts for the year ended March 31, 2010.