The Departure of City Bank from Sri Lanka: It is in our national interest for Foreign Banks to Go
Posted on March 10th, 2013
By Garvin Karunaratne, Ph.D.Former SLAS
It is in the news that CityBank would be leaving Sri Lanka. Many are worried that this will signal a loss of investment.
ƒÆ’-¡ƒ”š‚ My research tells me that foreign banks do not come to our countries to serve us. They come to make profits and take the profits away to their countries. It is not well known that they also try to manipulate our exchange rate by various means.
ƒÆ’-¡ƒ”š‚ The City Bank gets over half its profits from work done in foreign countries.
ƒÆ’-¡ƒ”š‚ Normally a bank is involved in lending and also providing banking facilities to locals. For providing that task they charge their clients. But there is an untold hidden agenda. It is sad that the currency of a sovereign country is subjected to manipulation in the quest for profit maximization.
ƒÆ’-¡ƒ”š‚ Let us look at a bit of City BankƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢sƒÆ’-¡ƒ”š‚ clandestine record.
ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-City Group was criticized for disrupting the European bond market by rapidly selling Euro 11 billion worth of bonds on August 2, 2004 on the MTS Group Trading platform, diving down the price and then buying it back at cheaper prices.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Wikipedia &ƒÆ’-¡ƒ”š‚ EuroWeek,Sept9,2004).
ƒÆ’-¡ƒ”š‚ More than the activities of banking this reveals a key method by which banks make money by selling vast quantities of bonds , thereby driving the price down and thereafter buying the same at the lower price. This is a key method that is used.
ƒÆ’-¡ƒ”š‚ The Banks do not care what they do as long as they can make a profit.
ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-On February 15, 2012, City Group agreed to pay $ 158.3 million to settle claims that it falsely certified the quality of loans issued byƒÆ’-¡ƒ”š‚ its CityMortgage over a period of more than six years so that they would qualify for insurance from the Federal Housing AdministrationƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Reuters Feb16,2012)
ƒÆ’-¡ƒ”š‚ CityGroup was even involved in theft of funds from customer accounts. On August 26, 2008 City GroupƒÆ’-¡ƒ”š‚ had to pay nearly $ 18 million in refunds and fines to settle accusationsƒÆ’-¡ƒ”š‚ by the California Attorney GeneralƒÆ’-¡ƒ”š‚ that it wrongly took fundsƒÆ’-¡ƒ”š‚ from the accounts of credit cards customers. It paid back $ 14 billion to 53,000 customers (ReutersAug26,2008)
ƒÆ’-¡ƒ”š‚ These reveal only the tip of the iceberg.
ƒÆ’-¡ƒ”š‚ Let us get down to how the foreign banks make money by handling our foreign exchange. This is something that should be of great concern to us.ƒÆ’-¡ƒ”š‚ I quote from my book: How the IMFƒÆ’-¡ƒ”š‚ Ruined Sri Lanka & Alternate Programs of Success(Godages): .
ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-On 25/1/2001 some commercial banks in Sri Lanka sold a US $ at Rs. 100.00. ForƒÆ’-¡ƒ”š‚ a short while on 26/1/2001 the $ was trading at Rs 106 though itƒÆ’-¡ƒ”š‚ closed at Rs 97 to the $ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦.. The Governor of the Central BankƒÆ’-¡ƒ”š‚ ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-attributed the dip on Thursday, 25 thƒÆ’-¡ƒ”š‚ to a miscalculationƒÆ’-¡ƒ”š‚ by one commercial bank regarding forward dollar purchases for a very large import billƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Sunday Observer,28/1). It is clear that when the State BankƒÆ’-¡ƒ”š‚ that had to meet the large import bill tried to purchase dollars, the banks that had foreign funds raised their price causing this devaluation. Was not this devaluation a manipulation by the commercial banks, mostly foreign owned to increase their profit.. Were they not holding the country to ransom?ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Pgs.95,96)
ƒÆ’-¡ƒ”š‚ What happened in this particular instance, was that, ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-The devaluation of the rupee to as much as Rs.100 for the dollar immediately after the free float was due to the foreign banks bidding the price upwards. This is based on the statement of our Central Bank itselfƒÆ’-¡ƒ”š‚ that a bank that had to pay a largeƒÆ’-¡ƒ”š‚ import bill did not have sufficient dollars and had to buy dollars from other banks that had bidded the dollars they had upwards. The Central bank indirectly confirmed this when they decidedƒÆ’-¡ƒ”š‚ that in the future large import billsƒÆ’-¡ƒ”š‚ will be settled out of the market and that there will be forward hedging to find dollars to pay such large import bills.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(Pg114) It is important to note that the Central Bank did not censure the banks in question, which shows complicity on the part of the Central Bank to allow this fraudulent practice to continue.
ƒÆ’-¡ƒ”š‚ What happens in real practice is that the banks accept dollars brought in by customers and thereafter decide their own price to sell it to those who want dollars.
ƒÆ’-¡ƒ”š‚ Actually our Central Bank does not control the foreign currency that comes in. The individual banks treat the foreign exchange that it collects as their own.ƒÆ’-¡ƒ”š‚ The Central Bank admits: that ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-In a free floating regime, the exchange rate is determined by the market forces. The Central Bank does not intervene in the process. The Central Bank has control over the domestic money supply.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(The Island Feb17, 2001)
ƒÆ’-¡ƒ”š‚ It is also a fact that the foreign banks have throughout attempted to collect foreign exchange. In 1998, when I wanted the Bank of Scotland to remit GB pounds to my NRFC account at the Bank of Ceylon, the pounds came via the Standard Chartered Bank which accepted the pounds and credited my NRFC Account at the Bank of Ceylon with the equivalentƒÆ’-¡ƒ”š‚ in Rupees. A protest by the Foreign Branch of the Bank of Ceylon was ineffective. I had to wage a two day battle, throwing my full SLAS weight,ƒÆ’-¡ƒ”š‚ to get that money credited in pounds to my NRFC.
ƒÆ’-¡ƒ”š‚ It appears a common occurance for foreign banks to manipulate transactions. In one instance in Indonesia Standard Chartered Bank was fined $ 895,000 for three fraudulent transaction.(Financial Times,March16,2001 )ƒÆ’-¡ƒ”š‚ ƒÆ’-¡ƒ”š‚ In one instance in the USA, it was proved that ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-for years Standard Chartered bank deliberately violated US laws governing transactions involving Sudan, Iran and other countries subject to US sanctionsƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦. Standard Chartered bank has agreed to forfeit $ 227 million for conspiring to violate the International Emergency Economic Powers Act.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚(USA, Department of Justice,ƒÆ’-¡ƒ”š‚ Office of Public Affairs, Dec10,2012,ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢Standard Chartered Bank agrees to forfeit $ 227 million for illegal transaction with Iran, Sudan, Libiya and BurmaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢)This flagrant action even against the dictates of the USA indicates that the banks cannot be trusted.
ƒÆ’-¡ƒ”š‚ What the facts disclose as far as Sri lanka is concerned,ƒÆ’-¡ƒ”š‚ is that the foreign banks act in a nefarious manner to devalue our local currency by holdingƒÆ’-¡ƒ”š‚ the foreign exchange that comes into our country as their sole possession. Since we accepted the free float, the Government does not decide the exchange rate. This is supposed to be done through the market mechanism and in this the foreign banks have a role to decide in a manner that increases their profits by hoarding the foreign exchange they have collected, bidding the value upwards,ƒÆ’-¡ƒ”š‚ causing a devaluation of our Rupee in the process.
ƒÆ’-¡ƒ”š‚ It is high time that a sovereign country handles its own foreign exchange in the national interest. The departure of foreign banksƒÆ’-¡ƒ”š‚ should be hailed and our local banks should immediately expand their activities to provide an efficient service.
ƒÆ’-¡ƒ”š‚ Garvin Karunaratne, Ph.D.
Former SLAS
9 th March 2013
March 10th, 2013 at 3:00 pm
Unless well organised regulatory regimes, proper law and order, severe punishment regime and mechnisms to enforce them are in place, foriegn banks going is good. Even Fed Reserve of USA is run by few individuals , is no secret. They manipulate global economy ruin countries – agreed.
March 11th, 2013 at 12:08 am
Sri Lanka’s currency continuously devaluates against the Dollar, Euro, and Pound for the simple reason that our country has an IMPORT ADDICTION…. the demand for foreign goods – no matter how tax prohibitive the government makes them, are always increasingly in demand. In addition we have a diminishing EXPORT MARKET…. nothing more. This is not the fault of foreign Banks. This current government thinks that we can rely on Tourism as our primary source of Foreign Exchange and that is where we are going to stay stuck in a downward spiral of devaluation.
Citibank leaving Sri Lanka is not a good thing, despite what this so-called PhD tries to scare us into believing. Foreign Banks attract Foreign Investors… I don’t know how that’s a bad thing? So Mr. Garvin K,…If you want Sri Lanka to remain a Nationalist controlled Banana Republic that has the majority of its working class people serving cocktails to foreigners, and folding bedsheets for a living, then keep up this ridiculous talk and continue vilifying and chasing away much needed venture Capital to grow our industries to international standards.
March 11th, 2013 at 12:30 am
What will be the status of the staff and the loans taken by them.
March 11th, 2013 at 2:39 am
Im not surprised about Citi, in fact all banks, local and foreign are involved in some fraudulent businesses. SL lacks proper banking controls not only to monitor foreign banks but also to ensure the currency is stabilised.
March 11th, 2013 at 5:10 am
The writer who has gained a lot from the West is critical of the West.
Let me tell you a true story that is common in the island nation.
A naturalised Indian takes a massive loan from a local bank. In this case the Peoples Bank. He starts a textile manufactiring Industry with machinery brought mainly from India and some from Taiwan. The Minister who is one of the heros of the author provides full support and publicity in the name of local industries and stopping imports mainly from the West. The workers are mainly Sinhala girls and when they want to start a union the Union Boss inform the owner and the few workers involed are removed cunningly. The Industrialist defaults on the repayments to the Peoples Bank. Bank takes over and run the business foe a while and most of the maccinery breaks down etc and most ohf the workers are laid off. The bank finally sell it off for a pittance and the former owners Indian friends-relatives by the business with a small loan from State Bank Of India in the Main Street. In the process the Peoples Bank lose billions of rupees.
There are a lot of true stories like this. When talking about money matters in the island nation and the West the author may be deaf about the Hedge fund that was run by a Tamil from the island nation and he is in Gaol in the US. These are the real culprits who is hurting the countries finances since 1792.
March 11th, 2013 at 2:33 pm
“The writer who has gained a lot from the West is critical of the West.”
Partially agree with Christie. MINDLESS anti-westernism (that Sinhala people are notorious the world over for) must stop, before this attitude destroys us. ND represents the levers of Empire, operated from India for elite Indians only. They keep the average Indian in the dark and continue to exploit them. Dont fall into New Delhi’s trap. They already think we are gullible fools.
March 11th, 2013 at 2:39 pm
“Citibank leaving Sri Lanka is not a good”
Agreed with Devinda. We need to become a global centre of banking, in order to survive. Otherwise Indian financial opportunists will fill the vacuum and strangle our independence even further. We will be in the same situation as Sikkim, Assam or Bhutan. Dont repeat the Bandaranayakkar mistake please.
March 12th, 2013 at 5:47 pm
This is a very good move. Sri Lanka need no foreign banks within the island. All banking transactions can be done by local banks. All local banks have partnered with banks abroad to complete the foreign leg of the transaction.
Local banks must grab this golden opportunity.
Citibank was part of a consortium of banks that forced-sold needless hedges to CPC in 2009. It is a blessing Citibank is leaving the country. In fact in an article about the hedging deal, I wrote to cancel banking licence of all foreign banks involved in the deal if they demand payment.
The revenue earned by Citibank local branches will not evaporate. It will be shared among the other banks raising their revenues and profits. We have enough local investments in banking. Foreign investments are needed in areas that lack local investment.
March 12th, 2013 at 9:38 pm
*** Sri Lanka need no foreign banks within the island. ***
LOL! Oh Right yes! Because Local Banks have unlimited capital to fund Infrastructure Development….
Its amazing to listen to Nationalistic Idiots who have no clue about Finance and Monetary Policy, yet have an internet connection and a strong desire to Bark their ignorant opinions to us.
March 15th, 2013 at 6:01 am
Hi mates Hedge funds are not yet there because there is not enough dough. It is not the fault of the City Bank that CPC blunder. It is the CPC personnel involved who should be behind bars.