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Ownership
restrictions unhealthy - DFCC CEO
To
seek legal remedy to redress Commercial Bank stake issue
 By
Santhush Fernando
Ownership restrictions currently enforced by the Central
Bank of Sri Lanka (CBSL) is a bottleneck for regional
expansion and liberalisation of the financial sector.
Chief Executive Officer of DFCC Bank, Nihal Fonseka
states that “the formation of larger and stronger
domestic banks assumes a greater importance in the context
of the ongoing negotiations relating to the Comprehensive
Economic Partnership Agreement. (CEPA) with India in
which financial services sector is a key area identified
for liberalization.”
“While easier entry into India is welcome and offer
immense opportunities, a large capital commitment and
staying power will be necessary for any bank to make
a mark in the Indian market. On the other hand, reciprocal
access to the Sri Lankan market, even with a time lag,
will require, banking institutions in Sri Lanka to be
of a larger size to counter added competition that they
will inevitably have to face in the near future.”
he states.
He further added that in an era where consolidation
among domestic banks to create larger financial services
institutions that can stand up to multinational institutions
has been encouraged and supported by regulators in most
countries in the region, it is regrettable that the
local regulator has, ostensibly in the interest of Good
Corporate Governance, used ownership limits as a tool,
thereby making such consolidation difficult.
“(Although) … a strong governance framework
is very important for banks, attempting to achieve this
through ownership limits … will not achieve good
governance. Progressive strengthening of provisions
in the recently issued mandatory specific rules on governance
are likely to prove more successful.”
“It is hoped that the Government and the regulator
will take the initiative to proactively encourage consolidation
by expanding the regulatory framework to encompass well-established
models used elsewhere such as bank holding companies,
financial conglomerates and easier transfer of assets
and liabilities in a merger or acquisition.”
This was stated in the Bank’s Annual Report released
recently.
Chairman of DFCC, JMS Brito stated in Chairman’s
Message that the Bank was affected by ownership limits
applicable to Banks in respect of its investments in
both DFCC Vardhana Bank (DVB) and Commercial Bank of
Ceylon PLC (CBC).
“The Bank owns 95.6% of the former and has been
granted until 2012 to reduce its ownership to 15% which
had provided sufficient time to execute alternative
strategies. However as regards CBC, the Management and
Board have identified some options, including the seeking
of legal remedies, to deal with the shorter period,
until October 2008, given for reducing this equity stake.”
The turbulent macro conditions were not conducive for
its core business of long-term project and capital asset
financing and therefore .. the Bank adopted a cautious
growth strategy for its loans and leases portfolios,
it was revealed.
DFCC Vardhana Bank (DVB) continued to make good progress
and is playing a key role in positioning DFCC Group
as a fully-fledged financial services conglomerate.
Bank had raised Rs. 3,029 million in new capital through
a Rights Issue, the first such issue in 14 years. Profit
after Tax at Bank level had grown by 17.2 per cent while
at the Group level was up by 32.8%. Income of the Bank
was Rs 9,636 mn in 2008 up 40 per cent from Rs 6,887
mn in 2007.
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