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| Sunday, 16 October 2005 |
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Features |  |
| News Business Features Editorial
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Fall of private banks : Central Bank sits back and watches by Nimal Wijesuriya The Central Bank of Sri Lank must be the only financial regulator who not only happily sits back and watches the decline and fall of financial institutions under its care but it also expedites their journey to death. There were at least 30 finance companies that failed under the watch of Central Bank after 1980. The most prominent ones being Mercantile Credit, HPT, UTI, Hideki, Home Finance, Vanik, Citicredit, UMF, to name a few. In all these cases Central Bank's Supervision Dept. idled while owners enriched themselves at the expense of depositors. Highly irregular financial transactions were openly carried out while Central Ban waited for official complaints to be received before taking any action. By the time action was taken it was invariably too late and depositors lost millions with tax payers also paying a high price for botched rescue efforts which often curiously helped only depositors with connections to Central Bank and the Finance Ministry. Bad debts Another spectacular debacle engineered by the Central Bank was the closure of Pramuka Bank. Instead of assisting Pramuka Bank to retain whatever little public confidence they enjoyed, Central Bank withdrew their banking licence effectively killing the Bank. If not for inept handling by Bank Supervision, depositors of Pramuka would have been still at least be earning interest on their deposits. Then comes the commercial and specialised banks. A conglomerate kept accumulating shares in the HNB under various names and once again Central Bank kept mum. The Bank continued to lose ground running up large bad debts. The same party has now gained control of DFCC leading to removal of its Chairman. If press reports are right, this is a step towards controlling not only DFCC and HNB but the Commercial Bank as well. That day, according to a newspaper is not far off. This will have far reaching consequences because customers and the public will hardly have a choice when selecting a bank. The dangers of giving ownership of the two main private banks and the main development bank to one party have been clearly explained in the newspapers during the last few days. Docile If open warnings like this does not push Central Bank take action, the country might as well do without one and save thousands of millions on what is now spent on maintaining a docile Central Bank that is unwilling to use the laws of and powers it has to safeguard the financial stability of the country. Even though our banking system may have survived in spite of failures of smaller banks and finance companies, it will not be the case when major players like HNB were to fail. The impact will be too wide speared resulting in the failure of many other depositors, borrowers and also other banks having likes with it. |
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