A tough-talking Central Bank Governor advocated bigger and better banks to propel Sri Lanka’s financial sector towards the Rs. 10 trillion mark by 2016 yesterday, outlining a raft of new measures for companies to undertake.
Deviating from his customary affable manner, Central Bank Governor Ajith Nivaard Cabraal was all business at the 2013 edition of the Bank Directors’ Symposium. Despite starting off with a quip on how most of the faces in the audience were also seen by him in the “rich list” of Sri Lanka, Cabraal went on to deliver his strongest message yet to the banking sector.
“Maintaining sound macroeconomic fundamentals are not just the Government’s business, it’s not only the Central Bank’s business, it is your business as well,” Cabraal told the movers and shakers of the banking world, emphasising that it was not that he did not want them to take credit for hard work, but to acknowledge it as a combined effort.
“Whenever a company does well, they will say ‘you know we have done extremely well, our people are very good, our staff is excellent,’ I’m also very good, nice pictures are put in… but the moment company hits a bad patch, it’s the Government – ‘Government has not done right, the macro fundamentals are not good, because of this we were not able to do that.’ Nobody ever acknowledges when they do well maybe the Government had a small part in doing that, maybe the other institutions had a part in fashioning the fundamentals to do that.
So next time I think you should take a broader view,” he said.
Dwelling extensively on the importance of an efficient, strategically positioned and international recognised banking sector, Cabraal was insistent on blending in with the larger goals of sectors such as tourism and the Government’s policies.
Taking a rather strong dig at the ‘giveaways’ offered by banks to depositors, Cabraal told directors to “get serious” and leave lotteries to the Lotteries Board. He also wanted business revival departments established at banks so creditors would have additional support to get their businesses back on track after a slump.
“We need to connect ourselves seamlessly to the real economy. We cannot diverse ourselves from the real economy. The financial sector survives because of the real economy. The real economy is given a boost because of the financial sector. Each one has an acute dependence on each other. We cannot talk about a US$ 100 billion economy without a sound financial sector.”
Pointing out that Sri Lanka currently has 21 banks and 58 finance companies, Cabraal insisted that mergers and acquisitions would have to take place apace to avoid “issues” as the sector moves to increase its current Rs. 6 trillion asset base to the desired Rs. 10 trillion.
“We have 11 banks in our country, which have assets of over Rs. 1 billion. Out of that four banks have assets over Rs. 500 billion, three banks have assets between Rs. 250 billion to Rs. 500 billion and four banks are between Rs. 100 billion and Rs. 250 billion, so altogether out of all our banks, 11 banks constitute 89% of our banking sector.”
“So what is the type of banking sector we wish to see? Fewer stronger banks, interest margin well below what we are seeing today and maybe still higher than international levels, at around 2% mark. Several banks in the top 1,000 banks of the world, better governance, professional management, a reasonable regional presence, fully IT-enabled, new products and services,” he added.
Currently Sri Lanka has only two banks in the world’s top 1,000 banks, ranked 979 with an asset base of US$ 8.4 billion and 983 respectively with US$ 4 billion. The five State banks account for 2.5% of the total asset base, which is almost equivalent to 3% from 10 foreign banks operating in the country. From the 58 finance companies, 90% are held by 28 companies.
Cabraal also called for bank costs to be reduced, diversified portfolios, financial deepening and improved asset quality. He also advocated takeover of finance companies by banks and noted it happened constructively in foreign markets.
Consolidation of the financial sector would empower banks to attract international capital and give them the confidence to compete on an international scale, Cabraal went on to say, stressing that reduced interest rates would motivate banks to offer new products such as in pensions and annuities for customers. Even though overall interest rates had dropped from 4.7 in 2010 to 3.9% last month he pointed out that Sri Lanka was way behind the rest of Asia.
He also noted that the US$ 1.5 billion raised by banks this year in international capital markets was “good,” but called for an increase.
