Kanrich Finance to merge with Nation Lanka Finance and increase capital base to over Rs. 3 billion

By Hiran H.Senewiratne

Kanrich Finance Ltd (KFL) will merge with Nation Lanka Finance PLC (NFL) and will increase their capital funds to over Rs. 3 billion, chairman/Director KFL Ravi Ratnayake said.

“This is being done under the Master Plan for Consolidation of Non-Bank Financial Institutions, evolved by the Central bank, and we have received the approval for this merger, which is aimed at meeting the deficit of the Capital Adequacy requirements of Rs. 2.5 billion, Ratnayake told The Island Financial Review.

Ratnayake added: “As per directions of the CBSL, Kanrich Finance has already started to settle the public liabilities of their customers in full and this process will be completed before the end of February 2023. The company settles these liabilities as part of the regulations for the merger and we have adequate funds to settle all deposits and promissory notes.

“Kanrich depositors, after they receive their deposits, are welcome to join the newly merged entity. There is another advantage to them as they can benefit from the increasing deposit rates in the market. In addition, our staff can provide advice if needed on re-investing.

“The Central Bank plans to reduce the number of finance companies from 42 to 25. One condition of their plan is that the companies which cannot show a capital of Rs. 2.5 billion must merge with another company or become a non-licensed company. Though Kanrich fulfilled all other requirements, Kanrich is missing this threshold marginally. Therefore, Kanrich has to fill this capital gap or become a non-licensed company. Accordingly, Kanrich is in the process of finalizing a merger with another finance company.

Kanrich Finance is performing well and continues to make profits, recording high financial stability. Despite the C-19 and regulatory restrictions, we recorded Rs. 183 million in profits before tax and Rs. 113 million after-tax profits last year. Kanrich is also reaching Rs. 2 billion in capital and possesses an impressive capital adequacy ratio of 29%.

“Prior to this in 2019, Kanrich had a tough time and to overcome this they implemented institutional restructuring, cost reduction and increased efficiency and productivity which resulted in a positive turn around resulting in reducing overhead costs. Senior management even voluntarily agreed to cut their salaries and allowances.

“With regard to Micro Finance Business, the product of Kanrich is entirely different from what is available in the market as it is based on a sustainable financing concept.

“However we opted out of such loans mainly due to political interventions in the microfinance industry. Political leadership publicly declared in 2019 that they would write off rural masses’ micro-loans, resulting in the accumulation of extensive NPL portfolios by financial institutions, including Kanrich. The extensive NPL portfolio in the micro product area resulted in weak income statements and tight liquidities.

“The company was subject to severe lending and deposit restrictions by the regulatory authority.

“Kanrich will not exit from the finance business as it is not a failed or collapsed company and does not have any other financial problems as well.

“On the contrary, it is doing well in terms of all financial indicators and after the merger will continue to engage in finance as an even stronger merged entity.

“On the subject of the Central Bank going ahead with the consolidation of finance companies and undertaking reforms in the finance sector, we have a doubt about the timing of these financial reforms.

“President Ranil Wickremesinghe recently said that he does not want to implement any reforms because they cannot be undertaken in a crisis situation.

“Unfortunately, the economic crisis is still unfolding and it has an enormous adverse impact on the business sector, including finance. Therefore, I believe that the government could consider giving the distressed companies some time to recover before subjecting any reforms.

“With the amalgamation with Nation Lanka we will become stronger and as a standalone lending institution will provide a better service to customers.”