Merging finance companies, experts weigh in 

November, 18, 2020

The 2021 Budget unveiled yesterday (17) by the Government had several supportive measures to stabilize the financial system of the country. Presenting the budget for 2021, Prime Minister Mahinda Rajapaksa emphasized the need for merging finance companies in a way that strengthens the companies currently functioning commercially in the sector.

Further, Prime Minister Rajapaksa proposed to merge the finance companies functioning under commercial banks with the banks in order to strengthen the banking sector and he further proposed to amend the necessary laws to enable commercial banks to also act as investment banks with the view to enhancing the diversification of the finance sector.

Meanwhile, this subject was also brought up for discussion at the Ada Derana 24 budget analysis programme “Roadmap to Prosperity - Budget 2021” featuring a host of government and private sector personalities to decode the 2021 budget presented in parliament yesterday. Speaking to Indeewari Amuwatte on Ada Derana 24,  State Minister for Money & Capital Market and State Enterprise Reforms Ajith Nivard Cabraal expressed the following.

“There was a very clear-cut policy at that time in 2014, that we should reduce the number of institutions that are in finance business. Stronger more liquid companies. As a result of that, we gave certain incentives for this consolidation to take place. Unfortunately, that was not persuade after the last government came in. But, now the need for that has been very clearly established. Everyone says; why did we not do it but now we need to do it even at this late stage. I think Prime Minister's announcement that the government would be providing with the tax incentives as well in order to make these investments in these new companies is a wonderful way forward because, that would mean that the finance system stability would be ensured. Finance system stability is important for a country to move forward.”

“There must be some very large scale finance companies as well as banks. So, that is going to be achieved and hopefully there would be the change of ideas to make sure that this work and after the announcement by the Prime Minister, I’m sure that the Central Bank also will take the steps to move that forward."

Meanwhile,  Softlogic Holdings PLC Chairman Ashok Pathirage also expressed his views in this regard.

“This is a good move by the Government, but at the same time we need to reduce the number of finance companies.  I saw somewhere that there is going to be very strict measures on finance companies. It is good to be strict on the finance companies, but also they need to handhold them for the next level. I know there are many mergers, acquisitions that the finance companies are trying to do. I really don’t know whether the Central Bank is really interested about this. We have faced certain difficulties in terms of getting these mergers done. So, just like the way that we announce these things, I think authorities and the institutes must take the correct initiatives to implement these things. That is critical. It is no point just announcing fabulous things. I think we all know that this is what is needed, the country at this moment in terms of consideration of the finance companies and even the banks. We know that we have too many institutes. I think it is very important that we take that cause. But, the fact is whether these institutes are also taking that seriously, I really don't know.