Friday, 16 August 2013 00:00
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The moderator for the panel discussion on Sri Lankan banks, Sampath Bank Director Sanjiva Senanayake, said that upon reaching a US$ 100 billion economy, the country will have corporate debt of over 8%, hence, the corporate debt market will have to focus on helping diversify the risk in the banking sector. He also said while current corporate debt is less than 1% and bank credit is less than 10%, in the next few years, the debt market will be as big as the loan market.
“This is something that we will have to focus on as it will help diversify the risk from banks to other investors,” he said during the opening of the panel discussion, which featured four other eminent speakers who presented their views in this regard.
Along with Senanayake, the discussion included by Central Bank Sri Lanka Deputy Governor Ananda Silva, Cargills Agriculture/Commercial Bank CEO Harris Premaratne, National Development Bank CEO Rajendra Theagarajah and Fitch Ratings Senior Director Financial Institution Head of Bank Group, South Asia Ambreesh Srivastava.
Speaking on the overall policy objective and the steps taken by the Central Bank to manage the emerging risks in the banking sector, Silva stressed on the importance of maintaining financial stability in the banking sector as it accounts for approximately 60% of the financial market. He said that the Central Bank has taken effective measures to strengthen risk management through the governance framework.
“In 2006, we reduced the general provision and in 2011, the Government and the Central Bank took several measures to control credit growth. Although Sri Lanka was categorised under MPI 3, the high credit growth fuelled property prices and equity market,” he said.
Silva expressed that due to low inflation and easing of monetary policies, there will be an increase in loans in the near future. According to him, this will lead to an increase in bank lending and no pressures in the economy will be experienced in the coming years.
Sharing similar views made by the Central Bank Governor during the keynote address, NDB’s newly appointed CEO Rajendra Theagarajah expressed that based on what has been witnessed in the economy in recent years, Sri Lanka’s journey towards becoming a US$ 1 billion economy is still on and will continue.
The GDP, having evolved over the years along with the ticket size of the transaction, he said the journey has given rise to a dual challenge, which is the funding issue and the ability for banks to understand the increasing scale and capacity. “This challenge comes from the talent pool of the bank and its board has to understand the need of the hour to improve their own talent mix. They must be willing to understand this need and should be able to convert the challenges faced into opportunities,” he said. Theagarajah added the growth story of the country must also be supported by the capital market which according to him has not developed to the extent expected.
Focusing on the pawning facility in Sri Lankan and the benefit it offers to the country and its masses was Commercial Bank’s Harris Premaratne. Stating that in the pawning sector, a single branch of a bank would transact about 50 loans per day, Premaratne pointed out that this facility is certainly hassle-free and the segment making use of this service cannot be shut out simply because it is a high risk activity for the bank. “As far as banks are concerned, all the benefits of re-capital are associated with pawning. While this does bring business to the bank, every business has a risk,” he said.
Premaratne noted that over the last few years, asset of the banks in the balance sheet have predominantly increased and the concern is on mitigating the risks. “In some banks, the asset and the pawning portfolio went as much as 25% and beyond. But when you analyse the risk, 97% of the portfolio is redeemed by the customer. There is no other lending portfolio that is credit worthy as this,” he explained.
