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Sri Lanka committee appointed to change direction of state banks

ECONOMYNEXT – Sri Lanka will appoint a committee headed by retired High Court Judge Sisira Ratnayaka and ‘experts from relevant’ fields to recommend legal and administrative changes to state-run banks, the state information office said.

The Cabinet of Ministers had approved a proposal by Finance Minister Mahinda Rajapaksa to appoint the committee.

State banks and their affiliated bodies should operate effectively to overcome the effects of the Sri Lanka economy from Covid-19 pandemic, the cabinet note had said.

“However it is apparent that state banks have operated away from the fundamental objectives formulated at the initiation of those banks and have operated violating the provisions and procedures,” the cabinet had been told.

Sri Lanka’s Bank of Ceylon was expropriated from domestic citizens, one of the first private large firms set up by indigenous entreprenuers soon-after as part of a wave of private property rights violations that led to Sri Lanka lagging behind East Asia, critic say.

Directed lending played a big part in the Gosplan style 5-year plans that led to the Hindu rate of growth in India as well as monetary instability and currency troubles in general up to 1991, analysts say.

Both Bank of Ceylon and People’s Bank had to be bailed twice out after engaging in politically directed lending by the tax payers in the 1990s.

People’s Bank ran out of capital amid massive losses.

However following reforms under the Chandrika Kumaratunga both People’s Bank in particular has strengthened its capital on its own accord by making profits.

Sri Lanka’s banks in general were reluctant to lend under political direction during the Covid-19 pandemic until a state guarantee was given.

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The Treasury which is usually expected to give a guarantee did not provide one and eventually the central bank stepped in. (Colombo/July24/2020)