Posted on June 30th, 2023


Banking crisis is not a sudden problem for the country. It has been a growing problem and the superannuation management has associated with the banking crisis. The banking crisis created because lack of capital in the system, when the bank management has been ignoring capital requirement as the bank’s ability to stay strong depends on the strength of capital support. Government, as the owner of banks, has not worked out a way to increase capital consistent with increasing risk. The bank management should have proposed the government to issue at least 50% of shares to private investors to reduce the burden. If the government allocates a large quantum of budget funds for capitalization of the Bank of Ceylon, Peoples Bank and National Savings bank, no money left for other purposes. The best option was giving share to private investors.  This was not done by the management.

To prevent the worse situation, the government should have not taken bank profits and allocate them for reserves. Each year, banks should have cutoff the accumulated loss from the capital and new capital should attract from the private investors. If it happened in 1970, and increased the volume of capital, banks would not face to the problem. The capitalization process has been implemented each year. If such practice has been done since 1970, Sri Lanka’s banking system would be the strongest banking system in Asia.

Since the 1978, capital requirement increased, but manak management did not advise the government, which scared to take right decision because of the threat of trade unions and opposition political parties.

Bank management was so corrupt and when they were granting credit, they did so many corrupt practices such as taking commission and other benefits.  The results of such behaviour were granted credits transferring to past due and keeping them as non-performing credits. Government knew this situation but didn’t take action to dismiss the management.

Many stupid actions were taken by the government, like recapitalization in the early 1990s.

Provident funds such as pension funds, employee provident Fund, Employee Trust fund should have operated open market and government did not allow for such efficient ways and make blind eye to the corruption. To get out these problems, the following actions are essential. (1) More than 50% private capital should attract with a condition for buying bank. (2) Investments of government and Central bank bonds should convert to bank shares. (3) Credit management of Banks should reform to grant quality credits. (4) Superannuation management should be on like superannuation management in other countries 

These actions will release the government. Banks and super funds will become powerful assets of the country.   

Leave a Reply

You must be logged in to post a comment.



Copyright © 2024 All Rights Reserved. Powered by Wordpress