Financial sector consolidation to return: CB

• CB says too many financial institutions for SL economy’s size
• Wants institutions to diversify business models, support domestic production 

The Central Bank yesterday said it will use its “authority and powers” to push finance companies and smaller banks to merge as consolidation was necessary given there were too many financial institutions for an economy the size of Sri Lanka’s. 

The Central Bank releasing a statement also indicated it will return to financial sector consolidation likely to be similar to what was followed during the former administration of Prime Minister Mahinda Rajapaksa. 

At the time the Central Bank under former Governor Ajith Nivaard Cabraal sought to implement a program to merge companies along a specific timeline. The policy was abandoned in 2015. Cabraal is currently a Senior Advisor on Economic Affairs to Prime Minister Rajapaksa.    

“In respect of the non-bank financial sector, the Central Bank message is the need for consolidation. The smaller should consider consolidating with the stronger. We have highlighted, time and again, that Sri Lanka has too many financial institutions given the size of its economy,” the Central Bank said in the statement.   

“At the same time, we urge financial institutions to diversify their business models, particularly to support domestic production activity, rather than being driven purely by short-term gains through financing imports and other business activities familiar to them. The Central Bank will use its authority and powers in the future to get the non-bank financial institutions as well as banking institutions behave as suggested above,” it added.