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Restructure
to avoid crisis Nivard tells banks
By
Uditha Jayasinghe
 The
banking industry is facing a ‘crisis of confidence’
and need to restructure themselves and find solutions
for internal issues to face the crisis ahead, according
to Central Bank Governor Ajith Nivard Cabraal.
Speaking at the Seminar on Current Global Financial
Crisis and its Implications to Sri Lanka organised by
the Strategic Enterprises Management Agency (SEMA),
he insisted that Sri Lanka was safe from the gloom and
doom predictions emanating from the international markets
due to foresight planning, but admitted that there is
more to be done.
“The global financial crisis is akin to the tsunami
and similarly the rehabilitation process must be done
over a long period of time. If there are problems within
the banking industry, then they must come forward and
suggest solutions to the policy makers. An impetus must
emerge from within the industry itself,” he said.
Reiterating the prudent action taken by the Central
Bank in early 2007 to strengthen commercial banks, Cabraal
went on to praise the government for its foresighted
approach.
However, contrary to the optimistic stance by the government,
industry pundits insist that consolidation of private
banks is essential to combat declining deposits.
Addressing the gathering, Sampath Bank Strategic Planning
Senior Manger M. Akmeemena pointed out that a franchise
system must be adopted if banks are to attract smaller
deposits, which is essential in an economy experiencing
slow growth. He also noted that banks face a dilemma
in managing multi-delivery channels.
“On one hand, the reason that the Sri Lanka banking
industry has managed to escape the global crisis relatively
unscathed is its underdeveloped state. Nonetheless,
it cannot be denied that Sri Lanka has bigger problems
than the global recession to deal with. Domestic banks
are largely limited because of contained monetary growth
and restricted capital to support risk on assets. We
have to face the challenge of creating enough capital
for more investment. Even though most blame the hampering
tax regime it must be confessed that banks do not create
value for investment, which is an even bigger constraint,”
he said.
Indicating a detailed graph, Akmeemena compared the
efficiency levels of state and private banks and stressed
that the latter were not necessarily more competent,
despite being commonly considered so. “The need
of the moment for any bank is capital infusion, but
how can they get it?” he queried.
Suggesting that government policy makers and bankers
should join forces Akmeemena called for consolidation
of banks. He also cautioned that lowering tax pressure
may not be as beneficial a solution as first imagined
because profit funneled back presents limited options
for bankers. “In Thailand, 157 banks were merged
to 55 in just two years. We have been discussing for
decades but it has not happened. Now circumstances will
force us into it. Banks are dinosaurs. They have not
utilised the IT potential of this sector. Conventional
banking has failed to penetrate rural masses.”
He further added that if mobile phone operators can
earn Rs.2 billion a month from small amounts of Rs.100
and Rs.200 then the banking industry must learn to tap
that space as well.
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