{"id":103602,"date":"2020-06-16T16:44:24","date_gmt":"2020-06-16T23:44:24","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=103602"},"modified":"2020-06-16T16:44:24","modified_gmt":"2020-06-16T23:44:24","slug":"liberal-decision-making-for-credit-approval-and-administrative-discretion","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/06\/16\/liberal-decision-making-for-credit-approval-and-administrative-discretion\/","title":{"rendered":"LIBERAL DECISION MAKING FOR CREDIT APPROVAL AND ADMINISTRATIVE DISCRETION"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

President\nGotabaya Rajapaksa reminded several times that banks must change traditional\nattitudes when granting financial supports to economic activities after the\nCOVID backwardness. No doubt that the president wants quickly renaissance of\nthe economy and the recession (negative economic growth) has become an\nunexpected experience in all countries. If the banking system of Sri Lanka\nstrictly adheres to instructions of the traditional lending books it shall be\ndifficult to reborn the economy that needs financial supports at this difficult\nmoment. Think about the role played by Industrial Saibutzu during Meiji\nrestoration in Japan, the way financial institutions contributed to the\neconomic revival, and banks and non-bank financial institutions in Sri Lanka need\nto play an effective role for the renaissance (re-emerging) of the economy. It\nis not important who is in political power, banks and non-bank financial\ninstitutions need to play a critical role.   <\/p>\n\n\n\n

Economic\nhistory gives evidence that the banking system had been worked with the government\u2019s\neconomic policy supporting the business and banks in many times had gone beyond\nthe limits and barriers. In Sri Lanka, it seems that bank management is in a\ndifficult situation to a quick change of attitudes as managers in a false\nmental condition. The instruction of President Gotabaya Rajapaksa is related to\nflexibility in the decision-making process and efficiency in service provision\nwhich means that banks should work like electricity when you switch on in the\nhouse, the light and power will come and when the switch off the power and\nlight goes off. Banks need to understand this simple truth regarding efficiency\nand flexibility, which means that a heavy wind is blowing trees bend down and\nthe wind goes away trees go back to the original position. <\/p>\n\n\n\n

Why\nbanks display reluctance to depart from the culture of traditional lending books\nis a question that should be critically evaluated. Since the 1970s managerial\nattitudes of banks have been changed and the experience in the banks has\nrecorded that many customers in the past used this type of liberal opportunity\nto mislead banks and cheat financial supports. (Citi Bank\u2019s experience in Hong\nKong- Fat Game at Citi). The best example was the situation created after the\nJuly riots in 1983. When I was auditing banks found that certain dishonest few\ncustomers gained relief in millions from government banks than the total credit\nsupports provided to rural agrarians in the country. Many dishonest customers\nwere non-Sinhala businessmen and the entire life of such businessmen was\ncheating government banks. When lending supports become non-performance credits\nthe audit process of banks blame decision-makers (credit approved authority)\ndisregarding the advice of the government and flexible attitudes must be\napplied with due care and attention. Mr.Gotabaya Rajapksa explained his advice\nclear to banks and he wants to generate flexibility and efficiency in\ndecision-making.  <\/p>\n\n\n\n

The\nlaw of administration guides that if a public officer has used discretion in\nthe decision-making process within four corners such decisions could not be\nchallenged as an ultra virus and this legal provision could apply in a\nsituation where the administrator can prove that the decision was within the\nfour corners and was beneficial to the party, which was deserved to gain\nsupport.<\/p>\n\n\n\n

The\nlaw of banking and the lending procedures are not subject to administrative\njustice in the law of administration, and the disciplinary actions of trading\nbanks against credit approved managers indicate that many instances banks\u2019\ndisciplinary procedures disregarded the principle of administrative law. It\nneeds the protection of credit managers if there was no dishonest intention of\nmanagers when approving credits. If managers make decisions on good faith (with\ndue care and attention) for economic renaissance it shall not be subjected to\nunreasonable litigation or disciplinary actions. Trading banks are subject to domestic\n(Central Bank) and international regulation (capital adequacy rule of Bank for\nInternational Settlements) and the capital requirements for various types of\nfacilities insist by BIS.  The Central\nBank of Sri Lanka should play its regulatory role on account of trading banks\nand a similar type of regulatory authority has given on all non-bank finance intermediaries\nin the 1980s by an amendment to the law. \nThe Central Bank should provide a re-finance support and credit\nguarantee where it is possible.<\/p>\n\n\n\n

In\nthis background, credit guarantee insurance would not be useful and think about\nthe sub-prime mortgage crisis in the USA, and insurance companies in Sri Lanka\nmight not able to accept the risk and compensate for in a situation business\ndefault credit repayment.  <\/p>\n\n\n\n

The\npublic statement made by the governor of the Central Bank in connection with a\nhire-purchase financing company echoed that the governor has a lack of\nunderstanding about trading banks and non-bank financial intermediaries. The\ngovernor of the central bank has been played a role as a university academic\nbefore assumed duties as the governor, and he did not work as a practically\nexperienced person in banking and credit matters which involve complex legal,\nprocedures, regulatory, accounting, collateral, and many other areas.  That is why he stated that hire-purchase\ncompanies are not non-bank finance intermediaries or not registered with the\nCentral Bank of Sri Lanka. The statement of the governor indicates that\nhire-purchase companies in Sri Lanka could be established without the approval\nof the Central Bank.  It is a serious\nlapse of the financial regulation in the country and why competent officers of\nCB did not advise this situation to the monetary board to revise the existing\nregulation?<\/p>\n\n\n\n

When\nI was working in a government trading bank I concerned the regulatory matters\nof the financial sector.  I can recollect\nthat when my bank authorized to grant credit facilities against NRFC balances I\ninformed the governor of the Central Bank that the trading banks\u2019 decision\nwould impact increasing inflation of the country and when Mr.JR.Jayawardane\nwanted to get foreign exchange more than the legally entitle amount to a\ncitizen I refused it on the normal procedure and Mr.Jayawardena understood my\nexplanation.  <\/p>\n\n\n\n

All\nnon-bank financial intermediaries including hire purchase, mortgage, leasing,\nand all other types of financial activities based on contracts or agreements\nwhich are involved with two or more parties must register with the Central Bank\nand the regulatory process of the Central Bank must be covered the operation of\nall these intermediaries. The problem, in this case, was the Central Bank has\nnot been played its role or it should have different regulatory institutions\nunder its leadership like in other countries. <\/p>\n\n\n\n

Banks\nand financial intermediaries use various types of agreements when financing for\nvarious purposes. A hire-purchase agreement means it involves two parties, financier\n(the owner or hirer) and the hiree (the person who obtains finance to purchase\nthe vehicle) and the office of motor vehicle registration indicates in the\nregistration book financier as the owner of the vehicle but not the person who\nobtained finance facilities to buy the vehicle. \nAfter full payment of the loan, the financier advises the Motor Vehicle Registration\nOffice to change the owner of the vehicle. \nIf the customer defaults repayment the loan the lender has the right to\ncease the vehicle. In Sri Lanka, non-bank financial intermediaries use crude\ntechniques to cease vehicles.  My feeling\nis the financier has to go the court and get an order to cease the vehicle\nrather than using the violent techniques. Trading banks use the technique going\nto the court but many non-bank financial intermediaries use violent techniques\nthat are subject to criminal justice. <\/p>\n\n\n\n

According\nto my experience, Bank of Ceylon first used a hire-purchase agreement to\nprovide financial facilities to purchase tractors to productivity committees in\nthe 1976 and used a successful strategy to ensure the repayment of loans,\nrather than using violent techniques to cease tractors.  After 1978, the bank widely used hire-purchase\ncontracts to provide finance facilities to purchase motor vehicles, trucks, and\nother types of vehicles that imported to the country under the market economic\npolicy.                      <\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS President Gotabaya Rajapaksa reminded several times that banks must change traditional attitudes when granting financial supports to economic activities after the COVID backwardness. No doubt that the president wants quickly renaissance of the economy and the recession (negative economic growth) has become an unexpected experience in all countries. If the banking system […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-103602","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/103602","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=103602"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/103602\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=103602"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=103602"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=103602"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}