Satisfactory progress on consolidation - Central Bank
Satisfactory progress was made in the consolidation process during
April 2014. All banks and finance and leasing companies (NBFIs)
submitted their broad plans on consolidation and greater participation
in economic activities.
The Central Bank reviewed the broad plans submitted by the banks and
NBFIs and another round of one-on-one meetings are to be held with the
banks and NBFIs to discuss these plans further.
Banks and large NBFIs have shown interest in merging and acquiring
many smaller NBFIs and have initiated Board level discussions with the
shortlisted merger and acquisition counterparts.
To facilitate these discussions, due diligence and valuation reports
of the NBFIs available with the Central Bank have been released to the
interested parties, upon completing the necessary legal documentation.
Several strategic investors who have shown interest in infusing fresh
capital to banks and NBFIs have also initiated their preliminary
assessments of the banks and NBFIs.
The DFCC Bank and the National Development Bank PLC continued the
preliminary work relating to the merger. The Merchant Bank of Sri Lanka
PLC, MBSL Savings Bank Limited and MCSL Financial Services Limited have
also initiated action on the merger of the three entities to form a
single licensed finance company.
In addition, approval has been granted by the Central Bank for
several NBFIs operating within financial groups to proceed in the
process of being merged.
In the meantime, the process of preparing the Information Memoranda
(IM), Due Diligence Reports (DDs) and valuation of NBFIs is expected to
be completed by the appointed audit firms soon. These reports based on
financial data will form the basis for negotiations between the
interested parties and target NBFIs.
At the same time, the Inland Revenue (Amendment) Act No 8 of 2014 and
Val ue Added Tax (Amendment) Act No 7 of 2014 have been enacted by the
Parliament giving effect to the budget proposal on financial sector
consolidation.
The Central Bank is in the process of finalising the guidelines on
taxation as needed by the Acts. The guidelines will provide clarity on
the proposed tax incentives for the financial sector consolidation
process and further motivate stakeholders of the consolidation process.
The Central Bank has also initiated action to review the existing
regulator y framework of banks and NBFIs to ensure that it is
strengthened to address the challenges that will arise along with the
consolidation of the financial sector.
The Central Bank continues to exchange views with all stakeholders of
the consolidation process while providing clarifications to queries
raised by different parties.
The Governor and senior officials of the Central Bank also
participated in several fora on financial sector consolidation organised
by external parties last month.
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