Govt, CBSL come under praise for safeguarding banking sector
Both the government and Central Bank should be lauded for safeguarding the banking sector from crashing when the country declared a self-default on April 12, 2022 said former Managing Director PWC Sujeeva Mudalige (PICTURED) at an Advocata event held last Friday.
He said Sri Lanka had to face many negative sentiments during that period where foreign aid stopped, the country’s rating reduced and FDI dipping. “Usually when this happens the banking sector crashes but in Sri Lanka, thanks to many prudent steps taken by both the government and central bank the local banking sector was not affected.”
He also said that later several political decisions like offering a moratoria and parate executions were initiated to safeguard tourism, industrial and SME sectors and even during this the banking sector was not affected.”
He said that today the country’s financial assets are around Rs. 32 trillion (Rs. 32,000 billion) within a Rs. 24 trillion asset banking system which includes Rs 5 trillion with the CBSL. The banking sector has around Rs.18 trillion and out of this 80% are made up of savings from depositors and loans. He said that there are 30 banks in Sri Lanka out of which 11 are foreign banks, 13 local and 6 state and specialized banks like NSB. There are also 10 listed banks.
“This is definitely too much for Sri Lanka as in countries like Australia and Singapore this number is very much small.”
He said that there were plans to consolidate and reduce banks but this talk had gone on for nearly 10 years.
Mudalige said that having too many State banks gives the government and politicians the option to mingle with the banking system and get their ‘friends’ into top positions like directors and even ‘stuff’ the banks with their political party supporters. He said that this also happens in other State Owned Enterprises (SOE) and this is the reason that most of them don’t like restructuring SOE’s.
“In addition, the government also tells State banks to fund fuel and provide loans to ailing SOE’s. When SOE’s fail to pay back for fuel and other advances, the State/Treasury decides to pay back the banks using our taxes!”
He also said that some politicians also tell the CEB or Water Board to provide water and electricity connections to places with a few families residing just to obtain votes and these connections don’t bring viable returns and the ROI is very long.”
He said hence today the country needs educated ‘statesmen’ and not politicians. Mudalige said whenever a government changes fresh bids will be called for restructuring SOE’s and once again the entire process will drag on for many years and when they are to be divested the next election will come and the process will stop!.
One of the panelists at the event said that there are too many shareholders and this also delays the consolidation process of the banking sector. Mudalige also said that SOEs can run properly and the classic example for this is Lanka Hospitals and NSBM Homagama where there are no strikes or political influence.
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