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The value of the Non Performing Loans (NPL) in the banking sector of Sri Lanka is more than Rs. 100 billion and thousands of mortgaged lands and assets of unsuccessful businesses have been locked up by banks.

Releasing these assets and bringing down the NPL ratio will stimulate the economic growth of the country, said Economic Advisor to the President Ajith Nivard Cabraal at the launch of the BT CapReach, the first Sri Lankan business rescue and turnaround company. BT CapReach is a joint venture between Begbies Traynor of UK and Capital Reach Holdings in Sri Lanka.

Cabraal said that the effect of releasing these locked up assets and start up business operations will equal the targeted FDI this year. The starting business rescue and turnaround company in the country is a significant achievement in this context.

Helping businesses to come out from their crisis is essential in bringing down the NPL ratio. Today the NPL ratio of commercial banks is 10% and 9.4% in the specialised banks and financial companies, which are very high compared to other countries. The high NPL ratio increases the cost of borrowing because the cost of NPL has to be borne by the system, Cabraal said.

"We generally feel that restructuring is necessary for firms in trouble. But it is wrong and in countries which maintain a NPL ratio below 1%, banks immediately intervene thorough rescue and turnaround companies and advise them to restructure when they default their first instalment, he said.

Managing Director of Capital Reach Holdings, Mayura Fernando said that the present economic conditions in the country create opportunities as well as challenges for businesses. It poses threats to under capitalise and commercially unsound businesses. Quoting the 2004 Central Bank annual report, Fernando said that lowering the NPL ratio is very important especially if Sri Lanka is to attract international funding.

BT CapReach will closely work with financial institutions in the country and their borrowers to turnaround commercial enterprises struggling for survival. BT CapReach has already discussed with private and public banks of the country to provide its services to their borrowers who are in crisis. BT CapReach will utilise local knowledge and experience of Capital Rich Holdings and extensive business rescue and turnaround skills of the Begbies Traynor Group.

Begbies Traynor is UK's largest independent turnaround, insolvency and restructuring firm and is listed on the Alternative Investment Market (AIM) market at the London Stock Exchange. The company holds 7% of the turnaround and restructuring business in UK and operates in South East Asia and South Africa. (GW)

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