Sri Lanka’s ambitious initiative of merging finance and leasing companies with their larger profit making counterparts or commercial banks proposed in budget 2021 begins to bear fruits with two such companies announcing its amalgamation on Friday (24).
The merger proposal between Arpico Finance Company PLC (AFC) and Associated Motor Finance Company PLC (AMF) has been approved by the Central Bank of Sri Lanka (CBSL) on Tuesday (22), the two companies said in separate stock exchange filings.
The surviving company would be AMF and in terms of the said approval, AMF is required to complete the merger by 31 March 2021.
The merger of aforesaid, will commence, subject to the in principle approval being given by the Colombo Stock Exchange (CSE) to AMF, for the listing of shares of AMF arising from the amalgamation of AFC with AMF, CSE filings revealed.
State Minister of Finance Ajith Nivard Cabraal that the government would be providing with the tax incentives as well for such mergers and is a wonderful way forward because that would mean that the finance system stability would be ensured.
Cabraal expressed the belief that the Central Bank also will take the steps to move that forward.
The mergers of Sri Lankan finance and leasing company (FLC) subsidiaries with their counterparts or parent banks will not have an immediate impact on the banks' ratings, Fitch Ratings said.
However, the extent of the impact of absorbed FLCs on banks' business models and their consolidated risk and financial metrics, particularly asset quality and profitability, will be important for the banks' ratings, the international rating agency said.
The merger finance and leasing companies with their counterparts will result in customers with a higher risk profile being denied credit.
“FLCs typically cater to sub-prime customers, which banks have very little appetite for,” the rating agency said.