Mergers and acquisition of banks, finance cos. in 2014
Sri Lanka’s banking and financial sector will undergo far reaching structural reforms with mergers of banks and finance companies to steer the country towards the goal of a US$ 100 billion economy by 2016, Governor of the Central Bank (CB) Ajith Nivard Cabraal revealed.
Unveiling the 8th road map 2014 containing monetary and financial sector policies for 2014 and beyond at the CB auditorium in Colombo on Thursday, he said that consolidation in the banking and the non-banking financial institution (NBFI) sectors will have to be encouraged using the attractive tax concessions offered from the 2014 budget.
Central Bank Governor Ajith Nivard Cabraal jokes during a media briefing on Thursday in Colombo. Pic by Susantha Liyanawatte
Two development banks, DFCC Bank and National Development Bank will be encouraged to merge to become a strong bank, he added.
The two banks have substantial private ownership, but they also have state shareholders.
Some 22 smaller private banks with less than 100 billion rupees in assets should be merged within a considerable period, Mr. Cabraal said.
Banks are required to submit plans for mergers by June 2014, he added. State-run Bank of Ceylon and People’s Bank will be directed to expand their regional presence and operate with higher levels of capital.
National Savings Bank is to broadbase its banking activities while new foreign banks will have to be locally incorporated commencing from the year 2016.
However Mr. Cabraal said that this will not apply for the existing foreign banks in the country. The NBFI sector consolidation plan will be implemented with incentives proposed in the 2014 budget. 58 non-bank financial institutions are to be consolidated into 20 larger ones.
A corporate group will be allowed to operate only one NBFI after end June 2014.
According to new guidelines they will be required to acquire or merge if they operate more than one NBFI.
Licenced banks will be encouraged to acquire NBFIs while larger NBFIs will be directed to acquire or merge with smaller NBFIs.
Smaller NBFIs are to be merged with one another and new investors, or banks or large NBFIs are to be directed to acquire negative net worth institutions.
Investors or banks are expected to absorb NBFIs with negative net worth by December 2014 and other mergers to be completed by 2015.
Investors infusing funds to increase capital of finance companies which need liquidity will be given matching funds from a liquidity support fund set by the CB. Finance companies will also get a liquidity facility from this fund.
According to new guidelines, the CB will impose penalties or remove from holding office key management personnel if they continue non-compliance of the CB’s directives.
Marketing practices such as lottery schemes of banks and NBFIs will have to be discontinued and the implementation of the current customer charter of banks will be enforced, he disclosed.