Consolidation will strengthen banks - CB Governor

By Sanjeevi Jayasuriya

Central Bank Governor Ajith Nivard Cabraal

The planned mergers will in no way affect the deposits of customers and current transactions with banks and Non- Banking Finance Institutions (NBFIs). This will only lead to more benefits to customers, Central Bank Governor Ajith Nivard Cabraal told the Sunday Observer.

This measure will also generate more stability from NBFIs and banks created by the consolidation, he said.

Commenting on the effect that consolidation will have on the smaller banks that cater to the middle and lower strata of society, he said consolidation will strengthen banks across the board. This will enable these institutions to cater to their clients better. It will also mean that they can serve a wider segment bilaterally in all areas of finance they offer to clients.

When asked of the scope available in the funding market that the bigger banks will bid for he said, "Big banks are expected to attract funds from the domestic and foreign markets at lower costs utilising the strong Balance Sheets that will result from the consolidation of the banks. Financing large scale infrastructure projects and private sector investments will be both possible after this. To this end we have followed an ambitious plan where the combined strengths of larger banks will synergies and serve the country's financial requirements more appropriately. It is expected that at least five Sri Lankan banks will have assets of Rs. 1 trillion or more, with such banks also having a strong regional presence. Domestic banks which have assets less than Rs.100 bn, are expected to increase their assets to Rs.100 bn or more, through organic growth and merger/absorption with other banks/NBFIs over a reasonable time horizon. DFCC Bank, DFCC Vardhana Bank PLC and National Development Bank PLC are expected to merge to create a large Development Bank that will provide a substantial impetus to development banking activities in the country.

Foreign banks in Sri Lanka are expected to demonstrate a greater participation in economic activities and make significant contributions to the economy. Further, banks have also shown interest in acquiring NBFIs. This will instill strong corporate governance and risk management practices in such NBFIs.

Commenting on the success the consolidation process is expected to bring, he said, the Central Bank is optimistic that the consolidation process will create a stronger and dynamic banking and NBFI sector in the country comprised of fewer but stronger entities. These entities will not only enjoy cost synergies but also higher revenues. Towards this end the Central Bank continues to maintain a close dialogue with all stakeholders of the Consolidation Process and guide the Consolidation Process to ensure a smooth flow of events while protecting all stakeholders of the banking and NBFI sectors.

A separate unit has been set up internally to spearhead the Consolidation Process. The Central Bank has engaged a panel of auditors specifically eligible to audit NBFIs to carry out the due diligence and valuations of NBFIs in a professional manner. A close dialogue has also been maintained with the other relevant authorities including the Ministry of Finance and Planning, Department of Inland Revenue, Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange on matters relating to the Consolidation Process. With all the fail safe systems in place all we have to look forward to is success, he said.