Cabraal gives banks ‘to do’ list

By Uditha Jayasinghe

Presenting a long ‘to do’ list for banks, Central Bank Governor Ajith Nivard Cabraal yesterday insisted on more proactive steps by the sector to support the Government’s development vision including funding capital for the five hub concept.

Addressing over 200 directors and chief executive officers at the Central Bank organised symposium under the title ‘Positioning the Banking Sector for the post $4K era,’ Cabraal stressed that there were many aspects that needed contribution.

According to Central Bank targets, total assets of banks should increase from the current Rs. 2.5 trillion to Rs. 9.2 trillion. Loans and advances should double from current Rs. 3.2 trillion to Rs. 6 trillion and deposits should also do the same to hit Rs. 6.5 trillion by 2016 to support the doubling of per-capita income.

From a local point of view, he urged banks to be concerned with providing funding for the Government’s five hub concept and the thrust areas focused on.

 “This would mean that banks have to take the responsibility of capital formation, which they do not have at the moment. Supporting SMEs, remittance-based businesses and lagging regions, especially in the north and east.”

Supporting local entrepreneurship was also focused on by him, as was tapping foreign capital. He pointed out that this year US$ 1 billion came from banks and there is still more space to bring in capital, particularly since such funding is committed for a longer period of time unlike money invested in other sources such as the stock market.

“Structural changes should also take place in banks. Keep abreast of all macro factors, both nationally and internationally. Secondly, follow all regulatory procedures. We do see in our board meetings comprehensive reports, but there are still areas of weakness. We want bank directors to take these things very seriously for a solid platform for our envisioned takeoff.”

Keeping a close eye on capital adequacy was also promoted. Cabraal emphasised the need to pay close attention to corporate governance structures to show Sri Lanka has a good system due to positive practices. He also wanted staff to be trained and IT services upgraded since transactions will probably double in the next five years.

“Improve risk management systems and pay attention to national and international trends. Corporate planning structures are also important. Be conscious of conglomerate risk. In good times, it’s fine, but in difficult times these will be much in focus and you need to concentrate on taking care of these risks.  Banks need to look at international links to make sure that they are also sound. Work on ratings and improve on a yearly basis,” he counselled.

Plan for succession as a routine exercise, he emphasised, adding that productivity must also be consistently increased.

FT