‘Mergers will create a vibrant financial sector’

By Lalin Fernandopulle

Consolidation of banks and financial institutions will help create a vibrant financial sector in the country, a senior banker told a panel discussion on ‘The way Forward on the Proposed Consolidation of Financial Institutions’ last week.

However, he said meeting the deadline to submit a plan and completing the process of consolidation was an uphill task for companies planning to merge.

The discussion was organised by KPMG Sri Lanka and CMI.

The speakers at the panel discussion said that not only tax payment issues but also transfer of information technology, human resource management, integration of staff and cultures are some of the major issues institutions will have to grapple with in carrying out the merger.

The deadline to submit plans for consolidation is March 31 and to complete the merger is June 30.

The Central Bank in its Road Map for 2014 underscored the importance of having strong financial institutions to steer the country towards achieving a US $ 100 billion economy by 2016 and beyond.

At the launch of the Master Plan for consolidation, Central Bank Governor Ajith Nivard Cabraal said that there should be bigger banks and financial institutions to cater to the global market and spur economic growth in the country.A senior banker said that the diverse expectations on valuation is a major challenge.

He said that valuation of investments in real estate portfolios and valuation of investments in private companies and tax compliance are some of the issues that companies will face while merging.

He said making a decision is easy but implementing it is a challenge.

The panelists also said that the merging of financial institution will create a cartel in the sector and reduce competition.

They said that amalgamated companies will have to serve different client bases such as corporates and micro clients. A panelist queried as to who would serve micro clients.

Central Bank Assistant Governor C.J.P. Siriwardene said that consolidation of banks and financial institutions will help create more banks with a turnover of over one billion dollars. The move will create a vibrant financial system in the country.

“We need strong banks to serve the regions and narrow the income disparity, support SMEs and the agriculture sector in the country. We want savings banks to achieve a profit of one billion dollars and reduce the number of financial institutions from around 58 to around 20. Small companies also face liquidity issues,” he said.