Banking system most prominent factor in march towards economic, social progress: Amunugama

Following are excerpts of the speech delivered by Senior Minister for International Monetary Co-operation and Deputy Minister of Finance and Planning Dr. Sarath Amunugama, addressing employees of National Savings Bank

At the time of the establishment of the National Savings Bank, I served as Director of Information in the Sirima Bandaranaike Government. At the time of the preliminary work in connection with the formation of the National Savings Bank, I had to participate at the discussions about the establishment of that bank.

How should such a bank be formed? What should be the aims and objectives of the establishment of the proposed new bank? How should the proposed new bank be differentiated from other banks? When questions of this nature were especially raised by Dr. N.M. Perera, I too had the opportunity of listening to them. In a sense it is my good fortune to have the opportunity to attending a meeting of the bank today after the lapse of several years.

Savings habit

At the time this bank was established the concept of ‘savings’ was intensively found in our country. Through the medium of the post offices, most of the school children were accustomed to the habit of saving.

If we refresh our minds about our childhood days, we remember the days when we deposited coins into tills or else we paid a small sum of money and bought stamps from the post offices and pasted them on the savings pass book. At that time there was a friendly approach towards savings and the use of money.

When Dr. N.M. Perera introduced a Bill in Parliament for the establishment of the National Savings Bank, he stated as follows: “It is my fortune that I am the Minister of Finance in society whose people are accustomed to austere lives. We always stress the need and the importance of austere living, and that the savings of the country should be properly mobilised and increased. Based on small amounts of money saved through the mechanism of the savings pass books, the National Savings Bank has now entered the banking sector which comprises of three prominent banks; and, that is a very good augury.”

Dr. N.M. Perera expected that this bank should prosper through the active cooperation of the banks’ employees. In accordance with his political philosophy Dr. N.M. Perera did not want to establish an “ordinary” bank in Sri Lanka. This bank should be built and developed as a national venture. That was his deep view and firm prayer.

Banking system

Taking the present position of our country we must concede the fact that in the march towards economic and social progress the most prominent factor is the banking system.

After the revolution in Russia led by V.I. Lenin, he was asked what his “priorities” were. In reply to that query he had stated that it was electricity and the banks. Those who listened to Lenin may have expected him to come out with a deep philosophical discourse. Lenin had further stated that if Russia does not develop her electricity supply and the banking system properly, Russia cannot progress and advance in her march to ‘economic progress’. What Lenin then said is valid to all of us today. We cannot speak of any economic development without reconstructing the two power centres – electricity supply and the banking system. The truth of what Lenin said then is more exemplified today.

Today in our country although people speak of ‘State’ banks, it is evident that you handle people’s money. That money is provided by the public. The strength and stability of a bank can be determined as the economic stability of a country as well. If this was stated around two to three years ago, no one would have believed it; today everyone conversant with the ABC of economics knows that the economic crisis of the West arose as a result of the collapse of the banking system in the western world. Banks in America collapsed first, including the Lehman Brothers who performed the function of banks when bankrupt (in Western capitalism Lehman Brothers held a special position).

Heralding change

In the past to a large extent, banks catered to the needs of the rich. Then, when a rich man entered a bank he was treated very courteously; a man without much money was treated somewhat very shabbily. That was a special feature of the banking system that prevailed then. If one had ready cash with him, then the banks too gave him loans. If it was a risky transaction, the banks would not lend any money at all. That ‘gloomy’ picture was completely altered by the State banks.

A competent person with a sense of dedication should be given loans, and thereby increase his assets as well as the assets of the country. Otherwise it will not be possible to develop a country. The banking system should be geared to meet the skills and ability of the people, and the required financial assistance should be given to them. Banks should be prepared to undertake risks in special circumstances. Simultaneously banks should also ensure that customers’ money is safe.

Today the cost of meeting entirety of the proceedings of this meeting is met from the people’s money. I am pleased to state that the Government had decided to entrust the People’s Bank with greater responsibility and place it on other banks. The banks which have good balance sheets can obtain loans directly from foreign sources. In the past the Treasury performed this function and instructions were given to the banks accordingly. Even now the Treasury holds some responsibility in regard to matters of this nature. In the future, banks will be authorised to perform this function.

Strong position

It must be mentioned that several countries in the world had accepted the fact that the Sri Lanka has a banking system which is comparable to any other such system in the world. This was confirmed to me when I visited such countries in my capacity as the official representative of the Ministry of Finance and Planning of Sri Lanka. In this connection I must confess that the KFW Bank in Germany favourably commended the successful operations of the banks in Sri Lanka.

By providing the necessary infrastructural facilities we have established a strong and wide industrial base in our country. If we take for instance the construction industry as an example, it is a fact that our firms can undertake construction projects successfully not only in Sri Lanka but also in foreign countries as well. We have reached that position through the banking system which facilitated the construction industry.

Our new policy is that the banks should grant loans to finance local projects. Hence a new era has dawned on to the local entrepreneurs to undertake construction work in foreign countries too. We will be gradually providing the background for local industrialists, and investors to be in readiness to meet that challenge. That is a significant change of policy. We must proceed on to a new society which is progressing satisfactorily.

Analysing the type of short term, medium term and long term investments, State banks should perform their functions accordingly. In this endeavour as stated by Dr. N.M. Perera, we must work in a united manner to achieve our goals. We must win in that effort. I must emphasise that we must always remind ourselves of our duties. Once a Chinese leader expressed the view that whether a cat is ‘black’ or ‘white’ was no problem for him and if the cat catches the rats, he was quite satisfied. Today all the Chinese leaders act on the basis of that philosophy. We too should emulate the Chinese leaders.

I wish to state that the Government’s aim is to take our country forward by remembering the past, the present and the future. That is the philosophy of our Government.