Consolidation will strengthen financial sector - Governor Ajith
Some criticism have been levelled by a section against the scheme of
Banking and Finance Companies Consolidation that has been proposed by
the Central Bank in its Road Map. However, economists say that this was
a step taken in the right direction and could have been introduced even
sooner. The benefits of the financial sector consolidation have already
been recognised by the entire industry and Central Bank has also been
encouraged by the positive comments received from several international
agencies as well as the international credit rating agencies.
Central Bank Governor Ajith Nivard Cabraal
Governor Ajith Nivard Cabraal says that they believe that
consolidation is an important initiative which would strengthen Sri
Lanka's financial sector comprehensively. In our view, the major and
long-term benefits of this process would be realised by the industry and
by all Sri Lankans in about three to five years time.
By that time, few people who have been criticizing this move mainly
because of political reasons would have eggs on their faces." Following
are some comments made by the Governor to some questions posed by the
Q: Many are concerned about the prevailing low rates of
interest and fear that their deposits will not provide them with a
sufficient income in the future. Will the Central Bank take any action
in this regard?
A: Sri Lanka is presently experiencing a sustained period of
simultaneous low inflation and high growth, as never before enjoyed in
its post-independence history.
This is conducive for economic activity. However, there is also a
down side in this situation,in that the country that has been used to
high interest rates, now has to adjust to lower interest rates within a
short time frame. Such adjustments usually pose some challenges,
particularly to depositors and long term savers.
That is why the large banking and insurance institutions should now
structure attractive long-term products such as annuities and pension
schemes so that the effects of the low interest rates would be offset to
some extent, by the robustness of such new innovative products.
The Central Bank has already given guidelines to the key banking and
insurance institutions to develop some financial products of that
nature, and we believe that over the next few months those institutions
would be able to come up with products that would address the expected
low interest rate environment.
Q: There has been criticism that the Central Bank has employed
a lobbying company in the US at a huge cost. Why did the Central Bank
embark on such a course of action?
A: After the end of the battle against terrorism the former
LTTE international network which was raising funds for terrorism, has
re-invented itself as human rights crusaders.
They are now furiously lobbying in the world capitals against Sri
Lanka with all types of bogus claims and half truths to tarnish the
image of the country and thereby destabilise the economy. As is well
known, and exposed in Wikileaks as well as in the social media, the
former LTTE international network is still raising large amounts of
money and lavishly spending such money on political campaigns of various
chosen politicians in many North American and European countries.
Some of those well funded elements are active in Sri Lanka as well,
in various disguises.
It is therefore, important that the Sri Lankan authorities expose
these former terrorist organizations and individuals of the LTTE
international network, who are today masquerading as human rights and
It is only by doing so that the damage they are causing to our
country and economy,could be reduced. To do so effectively in certain
North American countries, especially the USA, the practices engaged in
those countries are getting our own message across have to be followed.
Otherwise, we would not be effective. It is in that background, that
the Thompson Advisory Group (TAG) have been engaged to help the Central
Bank to convey a correct and accurate message about our country and our
economy to the US authorities including the politicians, and investors.
We must not forget that there are many US investments in our economy
and we need to give our US investors the right picture so that they are
not misled by the propaganda and lies of the ex-LTTE international
That sustained effort has helped our effort enormously, and we have
been able to change some of the wrong impressions, although it must be
admitted that more work needs to be done, in the face of a massive and
well-funded campaign by the ex-LTTE international network.
It must also be mentioned that, as long as forces inimical to Sri
Lanka, here and abroad, are active and are portraying erroneous pictures
to the outside world about our country and our economy,the Sri Lankan
authorities also have to be active and try to counter the formation of
It is however sad that those persons who are criticising the Sri
Lankan authorities' efforts to counter this various propaganda of the
ex-LTTE international network, conveniently turn a blind eye to the
propaganda of the ex-LTTE international network, which is spending
millions of dollars to portray a completely wrong picture about Sri
Lanka to the outside world.
Q: Recently, there have been allegations that the Central Bank
and the DCS have been churning out "bogus" statistics, which have been
designed to mislead international investors. What is your response?
A: There are some politicians in our country who would be
over-joyed if the Sri Lankan economy was collapsing or in the doldrums.
In fact, some of them predict the collapse of the economy once every
three to four months, and are naturally very disappointed when that does
Needless to say, these persons cannot bear to see the country's
macro-fundamentals improving, and therefore, they are now desperately
trying to "shoot the messenger" by claiming that the information and
statistics presented by the Department of Census and Statistics (DCS)
and the Central Bank are not reliable.
However, we state with responsibility that the Sri Lankan data and
information is collected, collated and disseminated by the Central Bank
and the DCS according to international standards and practices. We have
also continuously maintained consistency and excellent professional
standards and the highest levels of integrity in this endeavour.
Therefore, if some politicians do not like it, there is nothing that
we could do other than to advise them to show greater maturity and
accept these figures in the right spirit, and shift their criticism to
Q: Although you speak of a growing and stable economy, there
are many people who say that they do not feel the economic growth. What
have you got to say to them?
A: Notwithstanding anything that anyone may say, an enormous
transformation has taken place in our economy, and that change is
clearly visible and reflected in the lifestyles of people, in the urban
and rural areas. Food consumption, employment opportunities, educational
opportunities, entertainment, transport facilities, health services etc.
have shown tremendous improvement. In fact, if any persons were to
assess their own living conditions today, and compare that with that of
eight years ago, they would see a major improvement in the way they
work, live and play.
However, we have to admit that there are still some persons, who have
not been touched sufficiently by this rapid development, both at
national and individual levels. Further, although the number of such
persons has reduced dramatically, we still have to work hard until the
fruits of development reach and touch each and every individual in our
Accordingly, over the next few months, more work will need be done to
reduce the poverty levels further from its current 6%, and I think as a
result of such efforts, we would be successful in reducing poverty to a
targeted level of about 3% by 2016. When that is done, Sri Lanka would
surely be eligible to be hailed as a "model" in inclusive economic
transformation, and we are working hard towards that outcome.
Q: The CIFL depositors are blaming the Central Bank that they
are suffering because the Finance Company has not been supervised
properly and that therefore they have suffered a huge loss. What is your
A: The CIFL represents much less than 0.1% of the banking and
finance sector of our country.
That shows clearly that the CIFL issue is not a supervisory failure,
but a issue that has been prompted by circumstances that are peculiar to
the institution, namely the misconduct of certain directors.
Nevertheless, in response to the resulting liquidity and management
crisis in the Company, the Central Bank had taken the required steps in
accordance with the law to restructure the company and to source a new
investor. There is already provision in the Finance Business Act for the
restructuring of Finance Companies, if and when they face difficulty or
That is because the law recognizes that financial institutions could
face turmoil at times, however effective the supervision may be.
But, that re-structuring process has now been stalled as a result of
a injunction which has been issued by the Court of Appeal on the
petition of a few depositors. Hence, the restructuring process would
proceed only if and when that injunction is lifted, allowing the Central
Bank which is the regulator to take further action in this matter. In
the meantime, we ourselves, are deeply concerned because usually the
state of companies erode further, when business activities are
suspended, and that is why we hope that we would be in a position to
intervene sooner than later.
Q: Are you satisfied with the progress of Golden Key Plan of
A: The Plan of Action that was proposed by the Central Bank
for the Golden Key depositors is now being implemented by the Golden Key
Company and the Court appointed Task Force, and all stakeholders are now
beginning to see some tangible results.
While the progress was somewhat slow at the initial stages due to
having to put the Golden Key House in order, there is now a greater
momentum, and we are confident that the targets as per the Plan of
Action can be met within a reasonable time frame.
It must also be noted that restructuring of any institution is a
highly complex matter, and a "one size fits all" approach cannot be
implemented by persons who are not knowledgeable in the subject of
business revival. Fortunately, the Supreme Court took this view last
year, and now depositors have renewed hope about the success of this
plan. I must also say that many people worked hard towards this outcome
behind the scene to achieve this state of affairs, and I am personally
thankful to all of them for their dedication and commitment.
Financial sector consolidation as at end of February 2014
The progress in the consolidation effort has been satisfactory during
the month of February 2014. Meetings with foreign bank representatives:
One-to-one meetings took place with regional representatives and senior
management of foreign banks at which the foreign banks agreed to play an
increasingly active role in the economic activities of the country.
Merger between National Development Bank PLC and DFCC Bank: In line with
the joint announcement made in January 2014, the work is in progress to
finalize the merger of the two banks. Due diligence:A framework for the
carrying out of due diligence activities has been established, and the
audit firms that are eligible to audit banks, finance and leasing
companies (NBFIs) have commenced due diligence on the respective
companies. Regulatory coordination: The Securities and Exchange
Commission of Sri Lanka and the Colombo Stock Exchange have agreed to
set up a fast track process to facilitate the expected consolidations.
Tax related matters:
The officials of the Ministry of Finance and Planning and the
Department of Inland Revenue have agreed to deal with the tax issues
that are expected to arise consequent to the consolidation process. They
are also drafting the required laws to give effect to the proposals
announced in the budget. Awareness programmes: CBSL officials
participated at many knowledge sharing events on the subject of
These events have also provided opportunities to clarify certain
matters raised by stakeholders. In the meantime, the Central Bank notes
the positive sentiments. the consolidation process and the resultant
expectations of raising systemic stability and boosting long-term
economic development, as expressed by International Rating Agencies.
Further, the Central Bank welcomes the reaction of certain International
Agencies that have conveyed their desire to provide advice and funding
in the process of consolidation.