The Way the Wind is Blowing is the theme of the Commercial Bank's most recent annual report -- that of 2010. Mahendra Amarasuriya gives me his copy of the report a day after he has handed in his resignation from the bank's board as its chairman. There is subdued pride in the eyes of this man who steered the Bank for the last 16 years and transformed it from a Colombo-centric corporate bank into Sri Lanka's leading commercial bank. During his 16 years as the Chairman of the Bank, The Global Finance magazine ranked it the number one bank in Sri Lanka for 13 consecutive years including this year. It has also been rated among the best 1000 banks globally on two occasions.
In 2010 the bank set a record in Sri Lanka by becoming the 1st non-State sector financial institute to break through the Rs 5 billion post-tax profit ceiling that had become perceived as an insurmountable barrier in the industry. By September 2011, the bank had already surpassed its own record by reaching 6 billion. The fact that the Commercial Bank's performance was unprecedented during Amarsuriya's tenure will earn him his due place among banking stalwarts in Sri Lanka.
As Amarasuriya doffs his hat to his colleagues in the banking sector, he knows that he is leaving with an impeccable track record. His is a career that has not been blemished by accusations of corruption or nepotism and his integrity is not even a question. The battle he waged a few years ago on a principle; the need to prevent individual ownership of over 70% of the banking sector in the country is now the stuff of legend. Yet his resignation has not been without dispute.
Amarasuriya resigned not because he had to, nor because his shareholders wanted him out, but for personal reasons amidst the backdrop of a legal dispute over a directive of the Monetary Board of the Central Bank. The directive, known as the Banking Act Direction No 11 of 2007 as Amended, had been controversial from the very beginning because of 2 important clauses in it. The directive capped the age of a director on the board of a commercial bank at 70 and the tenure of a director to a maximum of nine years.
"At the time", says Amarasuriya, "two leading bank directors contested the directive and the Supreme Court made suggestions that these corporate governance rules should be redrafted. And accordingly, the Governor redrafted the directions based on the suggestions and made an exemption." The Monetary Board made a general exemption which allowed a director to complete 3 more years from January 2009 (which applied to anyone completing nine years on a board) and in the same way allowed any directors who had reached their 70th year to continue for a further 3 years from January 2009.
Amarasuriya celebrated his 70th birthday in December 2010. In 2008, K. C. Vignarajah, a senior shareholder and depositor in the Commercial Bank, filed a plaint in the Court of Appeal against Direction No 11 of 2007 as Amended, claiming that the directive was discriminatory against the banking industry. The Companies Act which also applies to banks, and which is an Act passed in parliament unlike the directives of the Monetary Board, does not restrict the directors' tenure and nor does it stipulate a retirement age. "This is left to the shareholders' discretion," says Amarasuriya and adds, "so such directives have stifled the independence of banks' shareholders".
The Court of Appeal gave an interim order to Vignarajah's petition and the final judgment is due on January 27. Amarasuriya, however, handed his letter of resignation on the December 28 and his resignation came into effect on December 30, 2011.
"When Vignarajah got the stay order, I decided to stay on," says Amarasuriya, "until I heard that the Central Bank had indicated that anyone who stays beyond December 31, 2011 will be in contempt of court. The Supreme Court had only made suggestions, whereas the Court of Appeal was about to issue a final judgment. The bank's legal advisors and other legal authorities confirmed that there was no contempt of Supreme Court. I could have continued."
Amarasuriya pauses and chooses his words carefully, "But I gave considerable thought and decided that if I did not resign it would affect the relationship between the Commercial Bank and the Central Bank. The Central Bank is in charge of all the banks in Sri Lanka, so considering all implications I resigned with effect from December 30
Last week the headlines of this newspaper ran, "CB Governor Pooh-poohs Fitch warning". Without a doubt, the Central Bank has been taking a controversial approach to Fitch' analysis of the country's economy. While the merits and accuracy of its analysis will be evident in the days to come, an independent, non-state financial sector will be crucial to safeguarding the economy of the country in this environment of uncertainty.
I ask Amarasuriya whether this independence will be compromised, given that over the last few years, and now culminating in his resignation, the banking sector has seen the departure of several key leaders who maintained independence and had the experience to deal with crises. He says: "The EPF, the BOC and the Insurance Company have been buying up shares in all the banks and because the Central Bank has influence over these institutions, there is now a hold on the banks by proxy."
Delivering the interim order on December 12, the Court of Appeal Judge said the banking sector and the corporate sector represented by corporations play a vital role in the economic development of a country. She highlighted the danger of losing bank-shareholders' confidence because of the directive of 2007 and points out the grievous damage that would be caused if shareholders took their investments away from the banking sector - the companies "trading in money." For this reason, she insists, that "it is important that the one does not tread on the toes of the other, unless Parliament through certain specific language has so expressed."
Whichever way the wind may blow after Amarasuriya's resignation, for now and several years to come, Commercial Bank will continue to be propelled forward on the strength of the currents set off during Amarasuriya's tenure. That, however, may not be the most prudent way to bank on a nation's economy.
(Ramya Chamalie Jirasinghe is a writer and author)