Banks’ low profitability keeps foreign investors away
View(s):Sri Lanka’s banking sector is faced with a serious profitability crisis on the back of large government taxes while slapped with new accounting standards that require them to adopt more impairment costs on loans, experts say.
Unlike other companies, barring tobacco and liquor firms, the banks and finance companies pay nearly 60 per cent in taxes to the government.
Liquor sector pays almost 92 per cent in taxes.
The new accounting standard, SLFRS 09 issued in July 2014 is intended to reflect the pattern of credit deterioration or improvement over the life of – say a loan for an example. The new standard will impact banks’ profitability, a CEO of a bank told the Business Times. Many banks have already said that they will be adopting the new standard and also given a total estimated percentage.
While SLFRS is a given, taxes are high. Sector experts say that foreign entities won’t be attracted to this sector if they can’t show higher profits.
Last year, the Commercial Bank for an example saw Rs. 1.4 billion in foreign selling. While HNB had a Rs. 3.1 billion inflow, analysts say that this sector has to be given some slack when being taxed.
Bankers had written to the Treasury through the Sri Lanka Bankers’ Association (SLBA) but ‘nothing has happened so far’, they said.
It turns out that the banking and finance sector pays over US$1 billion which annually render nearly Rs.200 billion in taxes to the government under the present taxation system. These taxes include 28 per cent in income tax, 15 per cent In value added tax, 7 per cent in debt repayment levy and Nation Building Tax 2 per cent. All this adds to nearly 52 per cent in taxes. Bankers say that when totalling taxes on a profit before tax base after adding employee salaries etc, it comes to some 57 per cent in taxes.
The reason to tax thus sector seems almost sinister. As one CEO put it, it’s almost as if these entities are penalised for doing well.
(DEC)