Monetary authorities urged to curb fiscal deficit

HNB’s CFO, Nihal Kekulawala says lending remains biased toward short-term working capital; Central Bank must maintain more vigilance and continue to take proactive measures to promote the development, efficiency and stability of the financial-services industry in Sri Lanka

In the March issue of LMD, the business journal speaks to the Chief Financial Officer of Hatton National Bank (HNB), Nihal Kekulawala, on how he rates the Sri Lankan banking sector in comparison with the rest of South Asia. “Asian banking markets are expected to grow at an average of seven percent annually in real terms, while markets outside Japan will grow at closer to 10 percent. For a relatively small nation of 20 million people, Sri Lanka has a high number of banks – 37 – with a significant concentration,” Kekulawala tells LMD’s Contributing Editor, Yamini Sequeira.

He adds: “The three large state banks account for 44.5 per cent of the banking system’s assets and the four largest private banks account for a further 31 percent. According to a study conducted by The World Bank, Sri Lanka has the highest branch and ATM-penetration levels (7.1 and 4.5 per 100,000 respectively) in South Asia. The high level of fragmentation could explain why Sri Lankan banks have a relatively high operating cost base compared to their regional peers.”

Speaking about the obstacles in the path of progress in the banking sector, Kekulawala claims that “the growth of the banking sector has surged in recent years due to loose monetary policy, substantial revenue and fiscal deficits being financed by these factors”.

“However, lending remains biased toward short-term working capital and trade-related exposures, with a modest increase in consumer and retail loans,” he continues.

Given that “for a relatively small nation of 20 million people, Sri Lanka has a high number of banks – 37 – with a significant concentration”, he urges the powers that be to take proactive steps to reduce the fiscal deficit. Solid growth prospects for the Sri Lankan economy are expected to strengthen the performance of the business sector and improve profitability in financial institutions. Policies to tackle macroeconomic imbalances are vital to stabilise domestic financial markets. The implementation of Basel II and integrated risk management in financial institutions will improve their resilience, he concludes.

The interview is featured in the March issue of LMD, the flagship publication of Media Services, publisher of LIVING, THE LMD 50, MOST RESPECTED, and presenter of BENCHMARK – the weekly TV programme for businesspeople, which airs on TNL every Sunday.