Roadmap ready to merge two local housing banks
The government, in its quest to bring about a strong banking sector, has drawn up a roadmap to (initially) consolidate smaller state banks including the two housing banks. ”In this roadmap we identified that Housing Development and Finance Corporation (HDFC) and the State Mortgage and Investment Bank (SMIB) need long term funding. We aim to set up one strong housing bank for Sri Lanka by merging them. Over the years their market size hasn’t grown as the customers want 15-20 year funding (loans) for housing and both these entities don’t possess that capacity. Their main constraint is the long-term funding in order to expand,” Eran Wickramaratne, Deputy Minister Ministry of Public Enterprise Development told the Business Times.
The HDFC Bank’s capital ratios have been declining alongside the expansion in its assets. Regulatory capital ratios benefit from zero risk weights accorded to housing loans backed by EPF balances. HDFC Bank which is 51 per cent owned by the state is required to meet a minimum capital requirement of Rs. 5 billion as a licensed specialised bank by 1 January this year, but the regulator has extended this timeline by two more years. Mr. Wickramaratne said that smaller banks including Divi Neguma, Lankaputhra and Regional Development Bank – some of which are to be merged with each other to set up a stronger financial institution, also need more capital.
He added that in terms of the main three state banks – People’s Bank, Bank of Ceylon and National Savings Bank, they are drawing up a plan for what their capital requirement will be for the next few years. “The Ministry has done a study on what their future capital requirement will be. They themselves have an ongoing process to strategise their future and we’ll work with the Central Bank on restructuring these three banks.” The banking sector comprises 22 local banks and 12 foreign banks.