Sri Lankan banks are charging high rates for their lending and making ‘enormous’ profits without being sensitive to the development needs of the country, according to local Treasury Secretary Dr. P.B. Jayasundera. Further suggesting the difficulties of borrowing and high interest were often raised by the private sector in meetings at his ministry, he also noted that, during the three decades long conflict which ended last year, private sector firms were privy to costs of borrowing "in excess of 30%".
Also that many had "continued to remain in high debt positions despite the fact that they had paid capital and interest well in excess of initial debts". He also opined that "very few banks [had] gone for restructuring of non-performing loans and under-performing businesses to recover their loans [instead] most of the banks [had] resorted to easy options of applying the provisions of debt recovery legislations".
Additionally, Dr. Jayasundera commented that the country's "infamous" Credit Information Bureau had "created a situation where bankers use [its] information to discourage borrowers and reject their requests". Further noting the most important role of the Central Bank of Sri Lanka (CBSL) was banking regulation, Dr. Jayasundera also called for the body's "Bank Supervision Department to undertake examinations not just to ensure that banks have complied with prudential requirements such as capital adequacy, liquid assets, non performing loans, etc. but also to see whether the intermediary costs by way of salaries and other benefits, operation expenses and so on are justifiable".
Dr. Jayasundera's comments were made recently as the keynote speaker at the inauguration of the CBSL's 60th anniversary celebrations, which is to include events throughout the anniversary period of one year. His views were presented in a speech entitled: "The Central Bank Relationship with the Government in the Context of the Emerging Economic Environment in Sri Lanka" and were made to a fully packed venue which featured local banking and financial services sector chiefs as well as other senior figures in the sector.
Commenting on the role of the CBSL with regards to the Employees' Provident Fund (EPF), he said: "The Monetary Board of the Central Bank is vested with full responsibility in managing the [EPF]. In comparison to the performance of many private as well as public provident funds including the provident funds of the state banks and selected enterprises, the [EPF] has performed exceptionally well by the selection of a cautious fund management approach. Consequently unlike several other provident funds in which the government had to inject capital, the [EPF] has become strong and the largest contractual saving institution in the country".
Meanwhile, about the country's international borrowing trends, he commented: "As a consequence of Sri Lanka becoming a middle income country, the access to grant aid and concessionary credit have become limited. So the Ministry of Finance like in other countries had moved on to alternative resource mobilisation arrangements such as IBRD, ADF and Exim Bank credit. The government also entered into international capital markets." Also speaking about the country's embattled garment industry, he stated that, since in 1990, "textiles and garment exports which were a less than 40 percent domestic value added industry has engaged with a domestic value addition close to 60 percent, in addition to the fact that this industry has shifted its reliance from protected markets to competitive markets".
Dr. Jayasundera also revealed that, between 1990 and today, employment had dropped to 5% today compared to its earlier 15%. The "incidence of poverty" had decline from 24% in 1990 to 14% today. Public debt had reduced to 80% of Gross Domestic Product (GDP) while the budget deficit was contained at around 8% with public investment being a little over 6% of GDP. He also shared that the country's reliance on "primary agriculture" had declined "drastically" from 26% in 1990 to 12% today, with food imports also dropping from 14.5% to 12.2% over the same period.