Sri Lanka’s co-operative society banks face credit and deposit risks
Sri Lanka’s Thrift and Credit Co-operative Society Banks (financial institutions) are facing a risk to their credit profiles and deposit base due to rising exposure to micro finance, corruption, fraud, malpractices and mismanagement of the administration, financial analysts warned.
The situation is grave for depositors of those financial institutions controlled by provincial councils as it is outside the purview of the Central Bank. At least two of these institutions are on the verge of collapse as a result of loan-book exposure to microfinance, default rate, corruption and frauds, they disclosed. These two cooperative banks are currently in trouble and the sum of money allegedly misappropriated could reach Rs. 600 million and over, official sources confirmed.
The management at the 532 C Wattegedera (Maharagama) Thrift & Credit Co-operative Society Ltd and the Gothatuwa Thrift & Credit Cooperative Society Ltd are allegedly involved in malpractices and these two societies have failed to refund the deposits on maturity to their clients, several depositors told the Business Times. It has been revealed that the Wattegedera institution has deposits of around Rs. 600 million with a deposit base of 550. Police filed a case at the Gangodawila Magistrates Court following complaints lodged against the management, a disgruntled depositor said. Thrift and Credit Co-operative Societies function as co-operative societies registered under the Co-operative Societies Law, No.5 of 1972 and also other co-operative societies are registered under a statute of the Provincial Councils.
Assistant Commissioner of Cooperative Development (Administration) K.M.M. Chaminda told the Business Times that the board of directors is responsible for all financial transactions of the co-operative society and legal action could be taken against the management in case of mismanagement. These registered societies are authorised to accept deposits from public and lend monies to their members, he revealed. He said 56 societies operate under the aegis of the Cooperative Development Department and are subject to strict monitoring. The department is also the national level regulatory body.
However a larger number of thrift and credit co-operative societies function under the control of provincial councils, which are also categorised as co-operative banks as they perform banking functions at grass root level. The Central Bank has no authority over these thrift societies, a senior official of the Central Bank told the Business Times. According to available data, the co-operative banking system accounts for about 1.5 per cent of the assets of the financial system in the country. The total amount of deposits in 1619 co-operative rural bank branches including Thrift and Credit societies in the island amounted to over Rs. 25 billion while the advances portfolio was Rs. 8 billion.
Their deposits account for nearly 3 per cent of total savings and time deposits of all deposit taking institutions in the island. Depositors at the two thrift societies that are in trouble alleged that the management had destroyed files with documents and deleted computer data to cover up their corruption, fraud and mal practices. One of the office bearers has taken a loan amounting Rs.11 million under his son’s name and defaulted it and at least a sum of Rs 25 million had been misappropriated by this person, they alleged adding that some of the lands mortgaged to this financial institution had been either re-mortgaged or sold at present.