News
State Bank faces semi privatisation
Semi-privatisation and a share issue either through the public or private entities to divest nearly half the bank’s capital, are on the cards for the debt-ridden People’s Bank, the 52-year-old state bank, amidst dire warnings from employees to the management against privatising the bank under the cover of restructuring, the Sunday Times learns.
A senior bank official, however, denied there were moves to privatise the institution. “The bank capital of Rs. 50 million has been gradually infused with more money from the Government. From 2004 to 2008, the Government injected upto Rs 7.1 billion in capital infusion. There are no plans to privatise the bank or raise new capital,” the official, who declined to be named, told the Sunday Times yesterday.
The Sunday Times, however, learns that the legal draftsman is preparing amendments to the People’s Bank Act No. 29 of 1961 to clear the legal path to these changes and these will be forwarded to the Cabinet for sanction before presenting them to Parliament for approval.
A senior government official, who spoke on condition of anonymity, said the Government was considering retaining 51 per cent of share capital and divesting 49 per cent either through a private placement or an Initial Public Offer (IPO) share issue with the state possibly retaining management control.
While an IPO offers the public an opportunity to invest in the bank through the Colombo Stock Exchange, a private placement means shares would be offered to a selected group of institutional investors and/or individuals without any listing of the shares in the stock exchange.
The bank founded in 1961 by the then Sirima Bandaranaike government to reach out to Lankan entrepreneurs has been facing a cash crunch due to a high default rate of loans and some risky investments as well as heavy overhead expenditure, the official disclosed.
According to Finance Ministry data, the bank’s loan book grew by 32 per cent last year to Rs. 611.4 billion while its pre-tax profit dropped to Rs. 15.2 billion mainly due to higher loan loss provisioning and overhead expenses. The bank’s post-tax profit recorded a modest growth of 4.3 per cent against the 2011 post-tax profit of Rs. 10.9 billion but last year’s profits were also due to lower tax rates, the data showed.
People’s Bank employees have vehemently protested against the move demanding the state authorities to immediately drop the plan of privatisation if there is any such move. Issuing a strongly-worded statement, the Sri Lanka Bank Employees Union said the Government would have to face serious repercussions if it went ahead with the plan to sell the bank to the private sector or to individuals.
The recent report by the parliamentary Committee on Public Enterprises (COPE) revealed that Rs. 31.38 billion had been taken as loans from the People’s Bank by 52 businessmen but had not been paid back so far. The report revealed: “29 persons who have received overdrafts to the value of Rs. 1.18 billion have not settled their debts; 109 more customers who have obtained (a total of) Rs. 5.9 billion too have not settled their debts.”
A union spokesman said similar attempts of previous regimes of the UNP and the Chandrika Kumaratunge-led coalition had been thwarted by bank employees. He accused the Government of trying to privatise the bank under cover of increasing the share capital to cope with high business volumes although Treasury Secretary P.B. Jayasundera had categorically stated, in the past, that the Government did not have any plans to privatise any state-owned bank.
He revealed that Dr. Jayasundara had briefed trade union representatives about possible amendment to the People’s Bank Act at a meeting held recently at the Finance Ministry to discuss the pension issue of state bank employees. But these amendments, Dr. Jayasundara had told top trade union members at the meeting were in relation to the Rs. 8 billion financial aid given by the Asian Development Bank (ADB) since the bank was in a financial crisis, he revealed.
comments powered by Disqus