- Eran defends Amendment as effort to increase capitalisation
- Warns unless State banks increase stability, they will lose market share
By Ashwin Hemmathagama – Our Lobby Correspondent
The People’s Bank (Amendment) Bill was moved in Parliament yesterday, seeking House approval to allow the Bank to raise capital by issuing debentures, which the Government insisted was necessary to meet Basel III requirements, increase stability, and improve market share.
Justifying the Amendment Bill, the Government said unless stability is increased, none of the State banks, including People’s Bank, will continue to hold its current market share of 45%, due to increased competition from private commercial banks in the years to come.
Assuring the nation the Bill is not an attempt to privatise People’s Bank, which has assets worth Rs. 1.75 trillion and 7,900 employees in 737 branches serving over 10 million customers, enabling the Government to collect Rs. 140 million as dividends during the last 10 years, State Minister of Finance Eran Wickramaratne moved the bill.
“Capital is necessary for a bank to grow and to be stable. According to Basel regulations, there are international capital requirements. The bank met the minimum requirements, regardless of the Government in power. But meeting the minimum requirement is not enough for the development of a bank. Prior to 1978, there were few foreign banks in Sri Lanka. Mostly they were the foreign banks established during the British colonial era in Sri Lanka. These banks had a large market share. Today, many are using foreign banks, and the local banks have lost market share. If this continues State banks will continue to lose market share, and end up in the 35% - 25% range in another 10 years. Ultimately this will end at a very low percentage in twenty years,” he said.
“Ownership alone will not help the banks gain market share. The Bank of Ceylon and People’s Bank are at the forefront in terms of service and technology. The private sector local banks will exceed the State banks unless we increase capital of the State banks,” he added.
According to the Government, the Bill will provide some autonomy and independent decision-making capacity to People’s Bank. “In Sri Lanka, our savings are less compared to other countries in the region. It stands around 6% - 7% of the GDP. So to increase capital, we need to borrow money as a loan or issue debentures. We propose to allow authorised capital of the bank to be increased from Rs. 1 billion to Rs. 50 billion in order to increase the financial stability of People’s Bank. BoC has Rs. 50 billion. People’s Bank can issue debentures without the requirement of Government guarantee and to suite the market. This enables them to take independent decisions. Already BoC and the NSB has the authority to issue debentures,” he explained. (AH)