RDB seeks ADB assistance for sustenance
Sri Lanka’s Regional Development Bank (RDB) is seeking Asian Development Bank (ADB)’s assistance as the bank’s present growth momentum is constrained by inadequate capital.
In a memorandum submitted to the Cabinet Committee on Economic Management (CCEM), the RDB indicated that its projected growth in lending to micro, small and medium scale enterprises as well as women entrepreneurs would be curtailed unless a capital augmentation plan is developed.
The bank’s capital ratios fell below the Central Bank’s minimum requirements and this situation will continue unless immediate remedial action is taken, Finance Ministry sources said.
According to a study undertaken by the ADB, the RDB will require Rs.12.3 billion of additional capital between 2018 and 2021 to sustain an 18 per cent annual loan growth, meet Basel 111 capital requirements and establish a capital buffer consistent with industry norms.
Among Sri Lanka’s commercial and specialised banks, RDB is best positioned to lend to micro and small entrepreneurs.
As of July 2017, it had over 500,000 client accounts of Rs.500,000 or less. And its branch network is one of the most comprehensive in Sri Lanka and is particularly strong in rural areas where other banks are unwilling to invest, RDB emphasised in its memorandum.
Under these circumstances, it has been proposed that a partnership be established with the ADB to overcome the capital shortage and enhance the capacity of the bank.
It requires not only capital but also technical support with priorities including centralising loan originations, increasing focus on SMEs and improving management information and risk management systems.
According to the memorandum, ADB’S US$ 100 million loan to the government would be invested in RDB as equity and debt.
Of this, 80 per cent would be used to increase the RDB’s capitalisation and the reminder to fund loans to SMEs for capital investment and it will be added to the ADB pipeline for 2018.
At present the bank has an asset base of over Rs.157 billion inclusive of loans and advances of over Rs.120 billion and a branch net work of 268 branches covering all districts in the country.
RDB was established in May 2010 as a licenced specialised bank with authorised share capital of Rs.500 million by merging six regional development banks (Rajarata, Ruhuna, Wayamba, Uva, Kandurata and Sabaragamuwa) through the Pradeshiya Sangwardana Bank Act No 41 of 2008.