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Monday, 25 November 2013 00:38 - - {{hitsCtrl.values.hits}}
When speaking about the 2014 Budget’s focus on the financial sector including encouraging mergers, Dr. Jayasundera lamented that development banks despite their strong balance sheets couldn’t raise adequate funds internationally. “What kind of development banks are they when they cannot raise $ 250 million and to do so they wanted the Treasury to guarantee exchange rate risk?” he added.
He told a packed EY briefing for its clients that State banks such as BoC and NSB fared much better.
The Budget 2014 presented by President and Finance Minister Mahinda Rajapaksa last Thursday also referred to the Government encouraging the merger of development banks as a part of financial sector strengthening. Only DFCC styles itself as a development bank whilst NDB converted itself to a commercial bank.
DFCC raised $ 100 million at a coupon rate of 9.625% (semi-annual payment) via five-year international bonds after much difficulty whilst NDB postponed the idea after testing the market. In the 2013 Budget, both were required to raise $ 250 million each. NDB has since proposed a Rs. 10 billion listed debenture issue.
Analysts said that the Treasury Boss being critical of DFCC and NDB was indeed an indictment on the Government because the biggest shareholders of the two institutions are State entities, with a host of Government nominees. “If the two banks haven’t delivered, the board or senior management can be removed,” they opined.
State entities BOC, Sri Lanka Insurance and Employees’ Provident Fund collectively own 33.35% in DFCC whilst HNB, which is also controlled by State entities, owns a further 12%, bringing the total State influence to 45.5%. In NDB, the collective stake of State entities BOC, EPF, SLIC and ETF is 33.2% and with HNB it is 35.8%. State entities hold a 29% stake in HNB.
Focusing on the financial sector, Dr. Jayasundera also said that banks weren’t lending to the real economy but largely concentrating on trade financing, especially for imports. “When an importer wants open a LC to import maize, no questions are asked, whereas when someone wants to grow maize locally, the very bank makes life difficult for the borrower,” Dr. Jayasundera added.
He also was critical of overbanking in rural areas. Everybody is keen to open branches to collect deposits rather than lend in rural areas. “For example, all new branches opened in Kebethigollawa are competing for the same market rather than creating new business via lending to the real economy,” Dr. Jayasundera opined.
President Rajapaksa in his Budget speech said: “Our banking and financial institutions need to focus their lending towards production and value creation industries and move away from traditional import biasness in their operations.”
The Budget 2014 has placed greater responsibility on the banking sector. They are expected to earmark around Rs. 500 million for medium to long-term development of the plantation sector.
The President also requested all banks and financial institutions to grant at least 500 working capital loans of Rs. 25,000 at an interest rate of 6% without requiring any collateral to such winners, towards developing greenhouse farms, poultry/livestock/fish farms or handloom/small industries so that Divi Neguma families could emerge as successful entrepreneurs.
The Government has also arranged Euro 90 million low cost funds (around Rs. 16 billion), to provide credit facilities at an interest rate not exceeding 8% for manufacturing and SME industries to modernize their factories with energy efficient technology to improve international competitiveness.
President also proposed a Women’s Micro Enterprise Credit Guarantee Scheme against which regional development banks and SME banking units of commercial banks will provide working capital loans up to Rs. 250,000 without requiring security. “I propose to dedicate 2014-2015 for women enterprise development, to be facilitated by regional development banks,” the President said in his 2014 Budget speech.
