CB tightens controls on finance companies
The Central Bank (CB) has observed certain erroneous news items
published in a few newspapers raising concerns over financial problems
confronted by a few licensed finance companies.
The Central Bank wishes to clarify facts behind the inaccuracy of
such news in the public interest, the CB said in a statement.
The statement in full:
These companies are under specific supervision of the Central Bank to
restructure their businesses under prevailing laws.
Problems of these companies are not new as these have been revealed
to the general public since mid-2008.
While the Central Bank was able to resurrect a number of companies
successfully, few other companies still continue in the process of
resurrection at various stages since the recovery of some large bad
loans given by these companies in the past is delayed due to legal
complexities and non-cooperation of those borrowers. The Central Bank
has attached highest priority to resurrection of these companies. The
latest initiative in this regard includes joint action by the
Government, Central Bank and Finance House Association (FHA) in
launching a new policy to resolve financial problems of these companies.
As announced in the Government Budget 2016, the Financial Asset
Management Company (FAMA) is to be set up in due course to help these
companies to recover and manage their non-performing loans with state
support in line with a model adopted by East Asian countries.
The FHA is proposed to help by arranging for leading finance
companies and their investors to provide funding support to these
companies for business operations in the interest of safeguarding and
promoting the non-banking financial sector as a whole.
The Central Bank will provide regulatory facilitation and arrange
infusion of fresh capital from investors. A good number of investors
with overseas links are in negotiation with the Central Bank.
As a policy, the Central Bank will not issue any new licences and,
therefore, licenses of existing companies will have a high market value
in the future which is a key factor encouraging new investors. A major
overhaul of the regulatory framework to strengthen the safety and
soundness of the sector as a whole is also an essential component in
this process.
The Central Bank has now set up a new ‘Resolution Division’ to take
all necessary measures to address financial problems of these companies
expeditiously. This specialized Division will help the Monetary Board to
implement necessary policy measures on a fast track basis.
A new set of regulatory and supervisory measures will be introduced
in due course in line with the above joint initiative. The examination
and supervision methodology has already been revisited to assess the
financial condition and the business models of the regulated entities by
focusing on material risks to their future sustainability of businesses
in place of the history-based assessment. In this context, the
respective Boards of Directors will be directly responsible for early
resolution of supervisory concerns over such risks. The financial system
stability of the country is one of the two statutory objectives of the
Central Bank, supported with a large number of statutory powers and,
therefore, the Central Bank will continue to resolve all problems
affecting the financial system stability. However, the Central Bank
alone is not able to do it and the support of all other stakeholders
would also be necessary.
The Central Bank is aware that certain parties who have the vested
interest in taking over the management of these companies or preventing
recovery action on account of large loans defaulted by them are
spreading such erroneous news for their personal and business interests
at the expense of depositors’ interests.
In fact, these are the parties who are directly responsible for
mismanagement of funds of these companies in the past which led to
current financial problems.
The Central Bank is also concerned about the publication of such
erroneous reports in the national newspapers without checking their
validity and authenticity as they may cause unwarranted stresses on the
financial system stability in the event such reports affect the public
confidence in the system.
This can have an adverse impact on the whole country as any
confidence issues regarding some could be easily contagious across the
whole financial system.
Accordingly, the Central Bank also wishes to seek the co-operation of
the authorities of such newspapers and encourage them to be more
concerned over national interests attached to this sensitive subject.
Therefore, depositors and other stakeholders of all regulated
entities are advised to be cautious regarding such misleading
information and co-operate with the companies and the Central Bank to
enhance business operations of these companies in their interest.
As such, the general public should have no reason for concern arising
from such erroneous reports.”
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