Sri Lanka wants to set up a special purpose vehicle to fix troubled finance companies, with IMF standing by to help with technical assaistance.
“Staff concurred with the authorities that continued efforts are needed to strengthen the legal framework for crisis preparedness and resolution,” an IMF report said.
“The Fund will work to provide technical assistance in support of ongoing work toward a resolution framework to deal with finance.”
The report said banks are generally well-capitalized and the problem was with a few non-bank finance companies.
“The authorities reiterated their commitment to finalizing a resolution framework for weak finance companies—through establishment of a special purpose vehicle—by the end of this year..” the report said.
IMF said some firms companies which was about 16 percent of the non-bank financial sector needed capital, and it may be about 1 percent of gross domestic product.
Sri Lanka’s central bank which regulates non-bank finance companies has too much regulatory discretion and forbearance in allowing companies with weak capital to operate, some analysts say.
Rules need to be put in place to resolve a company whose capital is falling early, they say, though there are signs that in some cases, non-bank finance companies may have submitted false numbers to regulators and also rating agencies.