Sri Lanka's central bank said on Tuesday it had taken action against two distressed financial companies to safeguard the overall financial system. It appointed a panel to manage Swarnamahal Financial Services PLC and its parent company ETI Finance Ltd, while curbing withdrawals of maturing deposits for six months, citing a need to ensure the soundness of the financial system.
"We needed to arrest the situation and take charge and now we will work through to get a good business plan together," Central Bank Governor Indrajit Coomaraswamy told reporters. The panel was appointed as a temporary measure to safeguard the interests of the depositors and other creditors of the two firms, and the central bank said in a statement it was searching for an investor to bail them out.
Coomaraswamy said the two distressed firms "should not have any impact" on the whole financial sector as they account only for 0.3 percent of the total of 11.2 trillion rupees ($73 billion) in assets in banks and other financial institutions. A total of five non-banking financial institutions are in distress in Sri Lanka, the central bank governor said. "We all know about the contagion. That is why we have moved right now and we have taken decisive action to contain the situation, and the central bank will stand behind the institutions and mobilise expertise," he said.
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