The Budget 2018 proposal allowing Sri Lanka’s two State banks, the Bank of Ceylon and the People’s Bank to raise debt and equity capital is aimed at facilitating the growth of the two banks and making them more competitive, a top legislator said on Friday.
“If the banks decide not to do so, the reverse is inevitable. Their share of the banking industry will keep dropping,” State Minister of Finance, Eran Wickremeratne told The Sunday Observer.
The State Minister explained that although in the 1960s and the 1970s, the two banks had control of nearly 80% of the banking assets in the country this proportion has, however, currently dwindled to about 40%.
Therefore, he explained that it is in this context the government has paved the way for the management of the two State banks to decide whether to expand.
Presenting the Budget 2018 proposals, Finance Minister Mangala Samaraweera disclosed that out of the six banks designated by the Central Bank of Sri Lanka to be Domestic Systemically Important Banks (D-SIBs), three State banks, the Bank of Ceylon (BoC), the People’s Bank (PB) and the National Savings Bank (NSB), are facing capital pressures.
The Budget 2018 proposed to provide an equity capital infusion of Rs. 5 billion to Bank of Ceylon in 2017 and a further Rs. 5 billion in 2018.
“The implementation of BASEL III International Banking Regulations which comes into effect in January will mean that banks will have to capitalize to the minimum required levels. If banks want to expand further, then they have to raise their own capital and the first thing they will do is to shed their non-banking assets and capitalize themselves for the banking business. Thereafter, they can access the capital markets like raising it from the stock market,” Wickremeratne elaborated.
The State Minister emphasized that if the banks decide to take the second option, the government, as the dominant owner, has clearly announced that it will retain control.
“If they are offering their shares, they must make sure the employees of the bank benefit and the depositors who may wish to participate,” Wickremeratne said.