Banking sector has potential to achieve Rs 10t asset base

Achieving a Rs.10 trillion asset base in the banking sector is not a difficult task due to the potential of the banking sector in the country, Central Bank, Assistant Governor C.J.P. Siriwardana told the Bank Directors’ Symposium 2013 on ‘Beyond a Ten Trillion Banking Sector’ organised by the Central Bank last week.

He said the Central Bank's aim is to help the banking sector to achieve this medium term target with sound banking to enhance their asset base by tapping the international market.

The asset base of the banking sector is around Rs. 6 trillion. Last year the asset base was around Rs. 5.2 trillion.

Siriwardana said that the global banking and financial landscape has changed with new products and technological innovation. The challenge for the banking sector today is to maintain stability in the financial system. The world has faced two financial crises in 10 years. The 1997-98 Asian financial crisis followed by the US financial crisis that hit the banking system of many countries.

“We need to build strong resilience in the banking system to absorb external shocks. Rapid credit growth, asset bubbles, weak external demand are some of the major issues the banking sector faces,” Siriwardana said.

The Central Bank has proposed in its 2013 road map a seven-point strategy to strengthen banking sector stability and boost growth in addition to the three pillars that that the banking sector should focus on, in maintaining stability and growth.

Siriwardana said that the banking sector should focus on the need for a liquidity buffer or capital adequacy ratio, good governance and profitability to face external shocks and maintain financial stability.

He said that the Central Bank is focused on helping the banking sector to maintain the requirements through its monitoring and supervision arm.

The banking sector should have a proper risk structure to maintain soundness of financial institutions. The country needs larger and stronger banks to achieve the US$ 100 billion economy by 2016.

“We have achieved around US$ 60 billion and hope to added another Rs. 40 billion in the next few years. Of the 21 banks in the country only nine have an asset base of over US$ 1 billion,” Siriwardana said.

The Hongkong and Shanghai Banking Corporation Ltd, Vice Chairman and Head of Financial Institutions Group Asia-Pacific, Global Banking and Markets, Olivier de Grivel said that Sri Lanka has a vibrant and dynamic banking industry. The rapid changes in the global banking sector and clients becoming more sophisticated forces banks to be dynamic.

He said the role of the bank's board of directors has increased following the increasing complexity of the banking sector.

The increasing demand of directors in the banking sector today is not a walk in the park. Independence, transparency, time commitment and active engagement are required from directors.

The failure of certain banks is because the real issues were not debated.

The Central Bank Governor in his keynote address said that banks should focus on doing serious banking instead of doing lottery business. Banks should focus on raising money in foreign countries and attract foreign investors.

- LF