{"id":97294,"date":"2020-01-05T01:31:46","date_gmt":"2020-01-05T07:31:46","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=97294"},"modified":"2020-01-04T18:28:01","modified_gmt":"2020-01-05T01:28:01","slug":"the-government-needs-to-permit-mergers-and-acquisitions-in-banking-and-finance-sector-in-sri-lanka","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/01\/05\/the-government-needs-to-permit-mergers-and-acquisitions-in-banking-and-finance-sector-in-sri-lanka\/","title":{"rendered":"THE GOVERNMENT NEEDS TO PERMIT MERGERS AND ACQUISITIONS IN BANKING AND FINANCE SECTOR IN SRI LANKA"},"content":{"rendered":"

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

The major crisis in the banking and\nfinance sector in Sri Lanka has been the shortage of capital in individual\ncorporates since the early 1960s and the control mechanism in the regulatory\nauthority (Central Bank) had little understanding and the capability of\nforecasting on the control requirements. \nRegulatory reviews for the efficiency, despite the limited legal\nprovisions in the banking act animated slowly and the permission to take\nnecessary initiatives for required legal and regulatory changes discouraged by\nthe less competitive market environment. Since the establishment of the\nPeople’s Bank, nationalization of partly private ownership of Bank of Ceylon,\nthe establishment of Hatton National Bank and Commercial Bank that established\nconverting Eastern Bank, capital issues had been in the banking and finance market,\nbut they were not openly seen. The operational results of the market from 1960\nto 1978 did not indicate how the problem expanded and traditional and\nquantitative control measures of central bank disciplined the players in the\nmarket without relegating to obscurities. \n<\/p>\n\n\n\n

Originally, the enactment of Central\nBank did not permit to touch non-bank financial institutions, but unexpected\nfailures reported in non-bank financial institutions after 1970 forced Central\nBank to take little initiatives in the regulatory environment. When the\nregulatory authority has been seen actual results of the market economic policy\non liberalizing banking and financial regulations after 1978, Central Bank had\nto open eyes.  Many foreign banks invaded\n\/embarked to the market and some organizations departed after 1983 without\nclear explanations for the departure.<\/p>\n\n\n\n

Capital crisis in the finance and\nbanking sector has been developing in many countries and off-balance sheet\nitems such as exchange contracts, insurance contracts, financing items for\nstock dealings and leasing items in corporate banking or non-bank corporates\nreflected developing risks. Bank for International Settlements begun insisting\ninternational regulation for capital requirements based on risk-weighted assets\nin individual trading bank organizations in the early 1980s and late 1980s Sri\nLanka also had to accordant with international regulations. Sri Lanka’s\nexecutives of the banking and finance sector had little understanding of the\ncapitalist crisis as they were in a misunderstanding of bank management and\ninternational practices or strategies relating to capital management in\ncorporate institutions.<\/p>\n\n\n\n

There were many reasons for changes in\nthe regulatory environment and the major issue of the market was a regulatory weakness\nto maintain good capital structure in individual organizations. Many trading\nbanks and non-bank financial institutions in developed countries without\nadequate capital to deal with the market risk and the most effective policy\naction in the developed world were to allow mergers and acquisitions in the\nsector.  It was observed in the UK, USA,\nAustralia, Canada, and others, besides, many governments allowed mobilizing\nequity and debt capital using a variety of techniques. Failures of banks in the\nlate 1990s (Asian crisis) and the crisis created in the first decade of 21st<\/sup>\ncentury in the US banks and others further echoed the capital crisis to a\nglobal level and forced toughen BIS regulations <\/p>\n\n\n\n

Sri Lanka\u2019s economy faced\nuncontrollable inflation, which was a combined theory of cost-push, demand-full\ntheories of H.G. Johnson and the Quantity Theory of Money presented by Milton\nFriedman resulting in the market economic policies and the LTTE war.  In this weak environment central bank\npermitted to establish many trading banks and non-bank financial institutes and\nwhy the central bank promoted such a policy while it was looking international\nbanking crisis (Asian Credit Market) was a question and did so-called banking\nexperts, retired non-Sinhala bank executive pressure to allow establishing such\norganizations?  <\/p>\n\n\n\n

While remaining capital crisis in the\nsector the government permitted to establish new banks and non-bank financial\ninstitutions in Sri Lanka and my opinion at that time was the government worked\nwithout understanding the market trend in the country and the developments of\nthe international level. There were uneducated non-Sinhala bank executives with\ndishonest elements in the banking and finance sector and the regulatory\nauthority allowed such personnel to rob the sector without understanding\npossible consequences to the financial system. Later central bank bond crisis\nreflected that the non-Sinhala executive circle was secretly working in the\nfinancial system of Sri Lanka with a dualistic aims, to create troubles in the\nsystem and cheat the system to gain undue enrichment, and Mr. Gotabaya\nRajapaksa has an unambiguous responsibility to eradicate dishonest finance\nexecutives circle in government own banking organizations. <\/p>\n\n\n\n

Economic liberalization began before\nand after the cold war and many countries in the world including India\nconcerned about the international crisis and developments of the sector. If Sri\nLanka ignores the capital crisis in the bank and the dishonest nature of non-bank finance sector, there is no doubt that it would not\ngive freedom to Mr. Gotabaya Rajapaksa to launch the country to a developed\nnation.  There is no harm allowing the\ndomestic capital of Sri Lankans to the banking and finance sector as the\nexperience had through Industrial Zaibutshu in Japan.  However, the privatization of government\nassets is not the government policy and the president of Sri Lanka in his\npolicy speech at the opening of the parliament in January 2020 clearly stated\nthat selling government assets to foreigners is not his will, but he did not\nreject the rights of Sri Lankans and their ability to contribute to capital\nstructure of government institutions. Alternatively, the government may allow\nfor mergers and acquisitions as a temporary measure. There is no doubt that the\neconomy of Sri Lanka will rapidly expand during the next ten years.  There may be internal or external shocks to\nthe economy and in such a situation Sri Lanka needs several banks to hold domestic\nand international assets and Bank of Ceylon and Peoples’ Bank can be worked as\nmegabanks with strong capital and business base. <\/p>\n\n\n\n

Megabanks can go to regional level\nconstructing high rise buildings at the regional level with a network of rural\nbranches supporting for decentration of urbanization providing all finance and\nother government and private company services to rural people uplifting rural\nlife. The megabank concept would demonstrate the stability and exalted strength\nof the financial system of Sri Lanka to foreign investors in creating a less\nrisky environment.<\/p>\n\n\n\n

If small banks don’t agree with\nmegabank concept, megabank can make hostile bids and make acquisitions and\ncreate synergies and eliminate financial bullshits such as no interest lending\nsupporting religious divisions in the country. <\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS The major crisis in the banking and finance sector in Sri Lanka has been the shortage of capital in individual corporates since the early 1960s and the control mechanism in the regulatory authority (Central Bank) had little understanding and the capability of forecasting on the control requirements.  Regulatory reviews for the efficiency, […]<\/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-97294","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\/97294","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=97294"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/97294\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=97294"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=97294"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=97294"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}