Government mulls state banking sector reforms
With the current political instability and massive debt repayment taking its toll on the country’s coffers, the Government is planning to draw money into state-owned commercial banks by selling 10 per cent of its shares to the public under a restructuring process.
State-owned banks especially Bank of Ceylon (BOC) and People’s Bank will be allowed to raise capital via the equity market (Government would continue to maintain its controlling stake), providing depositors and employers also with the option to become shareholders, official sources confirmed.
The BOC and the National Savings Bank had already tapped international capital markets, a senior official closely connected to the state bank restructuring process told the Business Times.
The banks need to boost capital to meet Basle III standard, he said adding that large state banks are short of fresh capital to meet a full implementation of Basel III requirements this year.
He noted that larger Sri Lankan banks are short of Rs. 19 billion with state banks accounting for 72 per cent of it to meet the current status of capital requirements for Basel III compliance.
However, he pointed out that the Treasury intervention is essential when the state banks need additional capital infusions.
The Treasury was required to monitor the operations of the recapitalised banks under strict conditions; he said adding that this situation will not arise when banks are allowed to raise capital via the equity market.
Vehemently opposing the government’s move, the Ceylon Bank Employees Union (CBEU) has brought to the notice of the authorities, that the Treasury should support banks to meet the capital adequacies required under international norms as well as under the Central Bank regulations.
CBEU President Channa Dissanayake alleged to the Business Times that the aim of the government is to allow state banks to crumble paving the way towards privatisation on the directions of the International Monetary Fund (IMF).
The IMF recommended that in addition to recapitalising public sector banks, the government should improve corporate governance and increase private-sector participation in bank capital, he disclosed.
The CBEU had requested a meeting with Finance Minister authorities to discuss current issues faced by banks including the reluctance of the government to appoint board of directors to state banks and recapitalisation moves as well as employees grievances.
All these requests were unheeded, he said adding that as a last resort they met President Maithripla Sirisena and held a discussion recently.
The President has given them an assurance that he will not permit the privatisation of state banks under the guise of a restructuring process, he revealed.
Mr. Dissanayake also alleged that a plan has been devised to close down several rural bank branches digitalising bank operations under a single bank.
Although many rural bank branches were not making profits, such small branches continue banking services for the people in remote rural areas extending financial inclusion.
Operational effectiveness will be enhanced by reducing overheads, particularly through branch rationalisation, a senior Treasury official said revealing that there won’t be ‘forcible retrenchment’ of any staff member while a Voluntary Redundancy Schemes (VRS) will be offered.
The IMF recommended that in addition to recapitalising public sector banks, the government should improve corporate governance and increase privatesector participation in bank capital, he disclosed.