Untitled Document

Pramuka crisis
Pramuka depositors plead for justice!
By Thushara Matthias
Two men with files in their hands walked into the business desk of The Sunday Times on Monday morning last week, pleading for justice. "Please help us turn around Pramuka Bank. If the Central Bank decides that it must go into liquidation, all depositors will be in trouble. We would never be able to recover our money as the liquidation process takes years. Please we need to convince the Central Bank and the government that the bank should continue to function," said Ranjan Arambawela, a depositor, who was close to tears.

Arambawela along with another depositor S.R. Sivakumar, explained in detail the plight of Pramuka depositors since the bank was abruptly closed by the Central Bank over concerns that its non-performing loans' portfolio had exceeded authorized limits. It was the first time a local bank has been shut down pending an investigation and its assets frozen.

Both men - who have separately deposited more than Rs. 500,000 in Pramuka - said they were hoping to call a meeting of all depositors to decide on a course of action including a guarantee from depositors' not to withdraw money for a specified period of time to enable another bank or institution to take over.

"We are prepared to help the Central Bank to run the bank. We are trying to get guarantees from depositors not to pull out their funds if the Central Bank decides that the bank should be managed by another party," said Arambawela, who currently has the backing of 20 depositors, in the battle to keep the bank alive.

Here is their story:
"Soon after the Central Bank suspended the business of the Pramuka Savings and Development Bank (PSDB), many depositors have - sometimes daily - come to the bank premises trying to find out what is happening to their money.

What will happen to our hard earned money? That's what people want to know. On November 2, depositors gathered outside the bank in Kollupitiya and agreed to form an association called the Pramuka Bank Depositors' Association to recover and safeguard their deposits. We were, however, only able to contact around 20 depositors who were present on this day.

We very briefly met the deputy director of Bank Supervision at the Central Bank, who couldn't comment on the situation saying the probe was on. We sought the assistance of the Colombo Fraud Bureau but we were told that without an order from the IGP, no investigation could be carried out. We wanted some relief … someone to turn to. But there was no one to answer our questions.

What we can't understand is how Pramuka Bank was able to honour its obligations without default if it is in trouble. In fact one of the depositors had withdrawn Rs. 1.2 million a few weeks before the bank was closed in a routine withdrawal. There was no indication from Pramuka whatsoever that they were in some sort of difficulty.

We are trying to organize this association to help our depositors and see whether we could help the Central Bank, another bank or even the present bank management - if needed under Central Bank supervision - turn around Pramuka if there is a crisis.

The whole objective is to protect our investments and try to stop any attempt to liquidate. The depositors are from different walks of life. Their deposits vary from Rs. 600,000 to Rs. 2 million including hard-earned retirement benefits and money earned while working abroad.

The depositors are in a helpless position. No one is prepared at the Central Bank to provide us a proper hearing and we are unable to even contact the Pramuka management. We tried Pramuka Managing Director A.H.A. Mendis and the other directors of the bank without success. When we call Mr. Mendis' residence, we are told he leaves at 6.30 am and returns at 11.30 pm.

It is also ironic that the Central Bank in an advertisement published on September 12 titled 'Institutions authorized to accept deposits from the Public" had listed Pramuka Bank under the "Licensed Specialised Banks" category. If at that time the public was given to understand the bank was running in an orderly manner, how - within a month - did the Central Bank find something wrong at Pramuka? Who are these so-called borrowers who took away all the money overnight to make the bank bankrupt? We like answers to these questions."

Pramuka, SEC … have your say!
The Sunday Times FT invites letters from its readers of current issues relating to business and the economy.

Current issues of interest include the crisis-filled Pramuka Bank, the budget, the SEC investigation of its own chairman and other top business personalities, accountability and governance in the private sector, etc. Letters should be limited to a maximum of 250 words, its use would be at the discretion of the editor and would be subject to editing.

Post your letters to The Business Editor, The Sunday Times FT, No 8, Hunupitiya Cross Road, Colombo 2 or email to btimes@wijeya.lk

Scrutinise accounts of state banks too
Why is there so much brouhaha about Pramuka Bank? True, many investors are in imminent danger of losing their savings and if I were one I'd certainly feel the Central Bank's action, though very possibly too little too late, is better than none. But from a larger perspective there are far bigger fish to catch.

The Sunday Times recently reported that the Central Bank authorities shut down the bank because of excessive non-performing advances. Is this a hackneyed joke or have the authorities forgotten about the more sterling examples of lax, excessive and improvident advances right in their own backyard: the state banking institutions? Or, are they left alone because the results of any exposure might be too frightful even to contemplate ?

With Pramuka, private investors will lose money. With the frolicking at the state banks and the evident lack of enthusiasm to take drastic action, the whole community is faced with general erosion in the standard of living.

Right above the commentary on Pramuka we had the report of insider dealing by individuals attached to the two premier investor watchdog institutions, the SEC and the CSE. Whether these charges are eventually proved or not is immaterial. The damage of reputation and the loss of credibility to the two organisations are incalculable.

When the government appoints high-profile businessmen to such elevated positions it must foresee these situations. Having said that, I am astonished these individuals appear not to have realised their conflict of interest position or what is more critical, the appearance of conflict of interest.

Insider dealing, mismanagement, improvident advances, conflicts of interest, absence of independence, inadequate controls, complacent ill-informed boards - are all symptoms of the same malaise: lack of effective corporate governance. A recent survey by McKinsey suggests international investors are willing to pay high premiums for companies and countries that demonstrate effective corporate governance.

In a completely human response, many have gloated over the recent shameful breaches of trust in North America. However, before we decide to arrogate to ourselves the moral high ground, let us hope these latest revelations are not suggestive of the proverbial opening of a can of worms.
Louis Roberts (A Sri Lankan-born banker in Canada)

Parate rights should be for all banks
Banking experts, analying the Pramuka crisis, said any of the smaller commercial banks could be having a similar crisis if not for protection in the way of parate rights.
"Many of the smaller banks have similar problems like a growing set of defaulters because of worsening economic conditions in recent years.

But parate rights help them to force defaulters to settle fast or face a seizure of their property and machinery," said one analyst, noting that Pramuka also had sufficient collateral to cover non- performing advances but lacked parate rights.

"Parate rights force defaulters to pay up quickly because this process is much swifter than going to courts to recover loans, which Pramuka and some other specialized banks are compelled to do. Court action takes years," he said.
"All banks should have parate rights."

The People's Bank and other banks have begun to recover loans aggresively, advertising heavily in newspapers on the sale of property and machinery in recent months.

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