Seylan in merger talks with NDB
The National Development Bank (NDB) would hopefully be third time lucky in trying to find a bride. This time it has proposed to Seylan Bank and initiated discussions on a possible merger, officials involved in the process, said. NDB which holds 10 per cent stock in Seylan has initiated this discussion some months ago, according to them. “These are at very preliminary stages and we’d like to see where this goes,” an NDB official told the Business Times. While venturing into commercial banking only in the past few years after being a solid state-led development bank, its interest in Seylan lies with expanding retail and corporate trade sectors, analyst said.
If merged, this new entity will be the third largest bank behind Commercial Bank and HNB, industry analysts said. This will amount to the new entity possessing Rs 521 billion in assets and 8.8 per cent of loans and 7.5 per cent of deposits, analysts said. These discussions have come after the NDB, DFCC and DFCC Vardhana banks’ consolidation strategy, according to the 2013 Budget statement, was dropped two years ago. These talks fell through in the midst of the last regime’s efforts to create a large development bank.
An earlier effort by NDB in 2007 happened when it proposed a merger between them and the Commercial Bank but it didn’t materialise with the entire staff of the Commercial Bank, opposing the move as being not beneficial to the bank. Three trade unions representing the staff- Ceylon Bank Employees Union, the Association of Commercial Bank Executives and Staff Association of Commercial Bank opposed this. During the past regime, a Master Plan on the Consolidation of the Financial Sector was presented in January 2014 designed for the reforming of the institutions belonging banks and non-bank financial institutions (NBFIs), which together account for 65 per cent of the financial sector of the country.
But in the post-Rajapaksa era, a committee, headed by Dinesh Weerakkody examining proposed financial reforms in the banking sector appointed soon after the advent of the new regime said that, “Mergers to be carried out within a stipulated time frame as stipulated in the Central Bank (CB) master plan will have even less chance of succeeding and therefore should be avoided in the future. When banks consolidate voluntarily, they take the needed measures to protect their own interests and would not participate in any Merger or Acquisition unless it is driven to benefit all stakeholders.”
It also added that mergers should occur only among consenting parties and on a voluntary basis, subject to economically viable and sustainable criteria that encourage institutions to consolidate. While some analysts say that the small financial institutions are generally more exposed to internal and external shocks and tend to threaten the stability of the entire financial system of the country, Central Bank Governor Arjuna Mahendran disagrees. He told the Business Times that in terms of finance companies, better run are the smaller ones. ”The larger these entities are, the less they are able to merge. I am questioning mergers.” Those who proposed the banking sector consolidation say that when larger banks grow, it will be difficult for smaller banks to remain competitive, and therefore, small banks are encouraged to merge with strong partners.