{"id":119317,"date":"2021-10-17T23:50:20","date_gmt":"2021-10-18T05:50:20","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=119317"},"modified":"2021-10-17T15:12:59","modified_gmt":"2021-10-17T22:12:59","slug":"what-are-the-reasons-for-a-high-risk-banking-market-in-sri-lanka","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/10\/17\/what-are-the-reasons-for-a-high-risk-banking-market-in-sri-lanka\/","title":{"rendered":"WHAT ARE THE REASONS FOR A HIGH-RISK BANKING MARKET IN SRI LANKA?"},"content":{"rendered":"

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

I\nread an interview had with Mr. Lakshman Silva, the chairperson of Bankers Institute,\nwherein he described the banking system in the country as in a high-risk\nsituation. What factors have been contributed to the high risk not described,\nbut two points mentioned were the low economic performance of the country and\nforeign exchange shortage. Economic performance fluctuates in any country, if\nit investigates the economic history of past three centuries it would reveal\nthat many economic fluctuations incurred, and the COVID-19 pandemic harms many\ncountries where economic managers can nothing to do against the pandemic, the\nnature of the pandemic is it forces lockdown and reduce economic activities. It\ncould be interpreted as an economic downturn or a recession (Negative Economic Growth).\nNo country will make a public statement that it is in a recession, as it will\nharm the economy and wipe off the value of the stock market. He did not explain\nthe reasons for risk in the banking system. This subject had been broadly\nstudied since the late 1980s and effective steps have not been taken by the\nmarket authority and allowed continuing the problem. This is the major reason\nfor generating a higher risk in the banking market.<\/p>\n\n\n\n

The\nCentral Bank of Sri Lanka issued banking licenses when they were not needed.\nSri Lanka needed to encourage merging banks to establish a Large Bank for holding\nassets. When the country needed reducing the players in the market, what the\ncentral bank done was done was creating more players and put the banking market\nto glut risk situation. The second factor that contributed to market risk was\nmany government finance organizations allowed for lending businesses\ncommissioned by the Central Bank. The Central Bank has many economists, why\nthey allowed to create a high-risk environment despite the fundamental role of\nthe Central Bank. Why did the National Savings Bank was given authority to perform\ntrading bank functions in the absence of critical consideration of many points?\nAn executive of the National Savings Bank who was in a trading bank had an\ninterest in performing trading baking role to show off his merits, but it was\nmisguided advice. The role of the National Savings Bank would have provided\nsupports to the government providing funds for investing treasury bills by\nsaving money in the National Savings Bank, and absorbing excess money in the\nmarket. They were some reasons to create risk in the banking market.<\/p>\n\n\n\n

The\nCentral Bank issued banking permits to several executives who retired from the\ngovernment banks. The finance environment was higher inflationary and to react\nagainst inflation needed policies to reduce money in the market, but the\nretired executives wanted make places to find lifetime jobs. I wrote to the\npresident of Sri Lanka not to entertain these people and harm financial system\nin Sri Lanka.  <\/p>\n\n\n\n

In\nthe early 1980s, International banking regulation was introduced by the Bank of\nInternational Settlements (BIS) to maintain risk-weighted capital adequacy in\nindividual banks, and later this regulation was introduced to finance companies\ntoo by the Central Bank of Sri Lanka. If this regulation is being maintained by\nbanks, they would not relegate to risk situations because banks have sufficient\ncapital to write off bad debt, which is unrecoverable after litigation and\nrealizing the collaterals. If bank managers have taken the wrong decision and\ndishonest decisions, there may be created high-risk credit portfolios. That was\nthe major reason to create high environment. The nature of Sri Lanka was\nlooking for loopholes in the system rather than proper compliance to reduce the\nrisk in the market. To prevent this situation, banks were introduced a credit\naudit process and a strict bank supervision process by the Central bank. After\n1990, these strict regulation measures were abandoned and politics invaded the\nbank operations.<\/p>\n\n\n\n

If\nthe chairperson of the Bankers Institute makes a public statement that banks in\nSri Lanka are in a risky and uncertain condition, he should have given reasons\nor submitted data to support his statement. How credit portfolios contain\nintolerable risk, which is neither the responsibility of the government nor the\nnegligence of customers, the bank management needs to maintain compliance and\nprotect the banking system from intolerable risk. Since 1990, banks were\nencouraged to develop credit policies that were neglected by political friends\nappointed to bank management.<\/p>\n\n\n\n

Banks\nin Sri Lanka do not respect BIS regulation, and current risk could be avoided\nby increasing the capital contribution. The current economic condition would\nnot allow the government to contribute a massive volume of budget spending for\ncapitalising on government banks. Don\u2019t forget the stupid decision made by when\nMr.R. Premadasa was president. How did he capitalise government banks and most\nprobably Paskeralingam given advice to the Central Bank to make stupid\ndecisions?  The best option is to allow\n25% of capital to be contributed by foreign investors and 25% of capital should\nbe contributed by local investors and Sri Lankan who are living in overseas. Then\n50% of new capital comes into the banking system and the shortage of capital\ncrisis will be solved easily. Besides bank capital, nearly US $500 million to one\nbillion come in and it would solve foreign exchange shortage. The risk level of\nthe banking system will be eliminated.   <\/p>\n\n\n\n

It\nis not selling government assets, it can include a condition to buy back shares\nand many of the shares could be given Sri Lankan living overseas. That is how\ncan reduce the risk in the banking market.  \n<\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS I read an interview had with Mr. Lakshman Silva, the chairperson of Bankers Institute, wherein he described the banking system in the country as in a high-risk situation. What factors have been contributed to the high risk not described, but two points mentioned were the low economic performance of the country and […]<\/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-119317","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\/119317","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=119317"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/119317\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=119317"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=119317"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=119317"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}