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| Sunday, 30 March 2003 |
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| News Business Features Editorial
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Excellent progress by People's Bank in 2002 The People's Bank has made excellent progress in 2002 with a substantially improved profit and continue to maintain the various new initiatives commenced in 2001 aimed at restoring its independence and financial strength. The bank has recorded the highest operating profit of Rs 2.9 billion in 42 years, an increase of 71.7% over last year. Meanwhile, it has taken steps to increased the low cost deposits by 15%, pawning business by 21%, substantially reduced reliance on lending to a single customer while increasing high quality lending to other customers by 36%, reducing interest rates and improving its responsiveness to value customer needs. The bank has also reduced its non performing lending by 9%, increased the ability to compete effectively by reducing its cost income ratio from 89% to 73%. The bank has also reduced the capital deficit by Rs. 2.9 billion while improving liquidity, increased the deposit accounts to 10 million, strengthened our customer service. People's Bank Chairman, Lal Nanayakkara said "Although People's Bank has been functioning as a viable and profitable business model, its inability to repair the capital inadequacy out of internally generated funds in the medium term leaves us with no alternative but to raise capital from any fit and proper sources in a totally transparent manner. The process of restructuring the Bank is much slower than it appears to be. "The real breakthrough will come as we create grass root empowerment: of our employees and through them to empower our customers and give them an even bigger stake in our future. Then will we become truly a bank of the people. "Despite the progress made so far the People's Bank still has a negative net worth of about Rs. 3 billion and needs a total of about approximately Rs. 10.5 billion to support its risk weighted assets. "This occurred because of a mixture of historic politicisation and weak governance, leading to a very poor credit culture and loan losses mainly during the 1990s. We have no choice but to restructure and commercialise the bank. We urgently need fresh capital and the Government has made it very clear that it was unwilling to divert funds from key social programmes to inject into People's Bank. "During the past two years we have demonstrated that the Bank can return a decent profit even without the necessary capital. However, it is apparent that People's Bank is worth less than the sum of its parts to its stakeholder. "The Board is therefore working closely with the Government considering various options to further restructure and commercialise the bank to provide assurances of future independence. "Further support will come from the Government's planned Asset Management Company with additional powers to require recalcitrant borrowers to settle their non performing debts." Derek J. Kelly, Director Restructuring and Strategic Development, in his review states: The Peoples Bank was established to provide for the most impoverished sectors of the Sri Lankan society, the farming and rural community. However, over the time government ownership led to politicisation, weak governance led to an abdication of independence, lack of clear business goals, empowerment, accountabilities and disciplines led to uncivil service and a lack of responsiveness to customers who paid and suffered. People's deposits became some peoples bad loans. It became a burden on the people who had to pay higher taxes and interest rates to keep the bank alive. "Therfore, we must build a real Peoples Bank truly accountable to all our stakeholders. "We plan to achieve this objective by implementing change, rebuilding independence, earning our living, creating stakeholder value, improving lending and empowering people." |
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