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Causal Factors of Failure of Finance Companies in Sri Lanka during 2008–2009 Jayasekara S G Sisira Dharmasri Senior Assistant Director, Central Bank of Sri Lanka, Colombo, Sri Lanka Online published on 6 April, 2015. Abstract This paper investigates the causal factors of failure of Licensed Finance Companies in Sri Lanka during the period of 2008–2009. The study considered long-term aspects of failure rather than liquidity constrains caused by short-term deposit runs. However, the failure of finance company was identified based on the liquidity constrains faced during the distress period during 2008–2009. Monthly panel data of six stressed LFCs for the period from 2004 to 2013 was empirically estimated using generalized method of moments approach. Results revealed that the movement of Treasury bill interest rates, increasing trend of non-performing accommodations, decreasing trend of liquid assets in terms of deposit liabilities, high concentration of real estate stocks in relation to the total assets, and high operating cost in terms of net interest income were significant causal factors of failure of finance companies in Sri Lanka. Top Keywords Licensed Finance Company, Failure, Core Capital, Risk weighted assets, Non-performing accommodations. Top | |
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