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Monday, 10 February 2014 00:17 - - {{hitsCtrl.values.hits}}
He questioned why the Central Bank had issued so many finance company licenses since 2006, including one as late as end 2013, charging that the Central Bank has been inconsistent in its behaviour by proliferating licenses and then wanting to consolidate. He agreed on the principle of consolidation and has been a long advocate of consolidation, but questioned the CB’s motives behind the present move.
Wickramaratne was of the view that the Government must create the legal and fiscal incentives to drive consolidation but leave the decision on mergers and acquisitions to the respective institutions, its shareholders, directors and senior management.
“You cannot transfer your problem with troubled finance companies to well-run banks or finance companies. If the Central Bank failed in its regulation, then the taxpayer will have to bear the cost,” MP Wickramaratne said in Parliament.
It was his view that the banking sector was strong, resilient, well-capitalised and profitable and any intervention by the Central Bank and bureaucrats in the strategy and operations of these institutions would be detrimental. “You will weaken a strong industry over time. Ten years from now these mistakes will unravel,” the UNP MP charged.
According to him, the intended NDB and DFCC merger will reduce competition on long-term lending and make the industrialist and borrower poorer by reducing competition.
“The merger will only increase Government intervention in well run-institutions. A merger should create synergy. One plus one must add to three. Therefore, it would be logical for merger partners to be dissimilar, bringing different strengths to the merger.”
Wickramaratne argued strongly that the decision as to which banks or finance companies should merge should not be determined by the Central Bank or any other authority but by the institution and its shareholders.
MP Wickramaratne said in 2009, eight finance companies had liquidity and financial problems. In 2013 CIFL had run into trouble. Noting that there was evidence that the Central Bank had known of the problem at CIFL but had been silent about it for unknown reasons, he said the poor supervision by the Central Bank has made depositors poorer and they had lost the confidence in the finance company sector. The depositors of Golden Key Company, CIFL and others are still living in hope that their hard earned savings will be returned, he added.
Fears have also arisen that the Central Bank’s direct involvement may result in further Government control of banks and finance companies, the MP charged.
Noting that Bank of Ceylon, People’s Bank, NSB, Commercial Bank and HNB account for about 66.3% of banking assets, while Sampath, Seylan, NDB and NTB account for a further 15.5%, he said even private banks were under heavy Government influence.
Citing an example, he stated that about 24% of HNB’s lending was to State-owned enterprises. He argued that there must be a strict separation of powers between the board of directors and the management. It has been reported that in one of the largest private banks, the chairperson was involved in management meetings, he added.
Wickramaratne asked why the Central Bank was not enforcing the code of governance, although he refrained from naming the individuals at this stage.
“Given the scandals in the stock market, the transfer of wealth into the hands of a few cronies, the finance companies could also end up in the hands of a few cronies,” he warned.
He pointed out that there had been a colossal transfer of wealth from many smallholders and funds such as the EPF and ETF into the hands of a few over the past two years. “Two SEC chairpersons were unable to prevent such a transfer of wealth and were forced out of office. So there has to be great vigilance on the CB-sponsored consolidation plan,” UNP MP Wickramaratne said.
