Features
CB to launch study to assess banks’ need for fresh capital
By Tennekone Rusiripala
This is a good move but belated! Mr. CBSL Governor, you trying to close the stable door after the horse has bolted. If the capital adequacy of local banks is so affected that a “diagnostic study” has become a must to “assess the extent of the implications coming from higher provisions made for losses on foreign currency -denominated financial assets and the additional losses stemming from possible bad loans” that itself implies that it is the result of a longstanding ailment and you are trying to assess the damage to prevent something worse happening. All Commercial banks are required to be under constant vigilance by a special arm of the Central Bank, the Department of Bank Supervision. But now we know that a situation has come about, warranting a more authentic diagnosis by an audit outside the present external auditors of the banks implying that the deterioration has completely escaped the attention or suffered the consequences of negligence by the authorities.
While it is alarming to note is that our big banks are undergoigng the painful effects of unprecedented pressure due to critical economic conditions of the country, it is more distressing to note the critical situation our Central Bank itself is facing. When confronted with such circumstances we are reminded of the saying, ‘Physician Heal thyself’.
The outlook of the banking industry became a hot topic after President Ranil Wickremesinghe announced the need to issue 20% of the stock of state banks to depositors and employees in presenting his revised budget to parliament sometime back. While we are not aware whether the Central Bank’s reported initiative is a result of the budget proposal OR arising out of a preconditional directive from the IMF, this action plan of the CB to launch a diagnostic study centred around the big banks including the state-owned ones is on the cards now.
The CB is the Banker to the Government, Banker to Banks, Custodian of the Monetary Policy, Regulator of the Commercial Banks and the Economic Advisor to the Government. Associated with these roles the CB is responsible for the discharge of several vital functions related to the issue of currencies, Exchange Control, Bank Supervision, Banking development, including Rural Credit and Rural Banking among many others extending into a wide spectrum in the social web of the country. Of these the most relevant to the topic of our discussion is the Bank Supervision role of the Central Bank.
Since its inception, bank supervision has been recognised as an important function assigned to the CB among other mandatory duties, specifically provided for in the Monetary Law Act. The MLA provides for continuous supervision and regular examination of all banking institutions including non-bank financial institutions. The Monetary Board has to fix the duration of the periods for such tasks from time to time and the Director of the Bank Supervision Department nominates examiners authorised by law to scrutinise books and accounts of every commercial bank. Specific provisions in the MLA empower the Director Bank Supervision to call for detailed information from any bank in the course of such examinations. The CB is authorised to call for further information and clarifications directly from the Auditors of Commercial Banks.
Bank deposits have assumed vital importance in the national economy due to their role in money supply. The Department of Bank Supervision of the Central Bank is required to take steps to retain public confidence in the financial institutions and protect depositors’ interests. The existence of the banking system depends heavily on the public confidence in their stability. The Central Bank is duty bound to play the role of creating and maintaining of public confidence in the financial institutions of the country.
Our banking industry comprises state-owned banks, indigenous banks and foreign-owned international banks. All these banks fall within the regulatory and supervisory purview of the Central Bank. In keeping with the international norms applicable to those banks engaged in cross border operations, the Central Bank from time to time issues directions to update the regulatory standards to match the changing and developing International regulatory frame work. This is achieved under the directives issued to meet the standards stipulated by the Geneva-based Bank for International Settlements (BIS); known as BASLE accords, they are to be observed and adhered to by all internationally active banks. BIS is the Bank for Central Banks and today it has developed a global supervision framework applied as mandatory regulations that should be followed by all banks exposed to international business. Accordingly, the supervisory role of the CBSL is guided and regulated by such BASLE accord directives adopted periodically. To fulfil this requirement and promote development as the economic advisor to the government, the CB issues directives, determinations and circulars to licensed commercial banks in the country, and one of the responsibilities of the Bank Supervision Department is to ensure the observation and adherence to these by the LCBs and that the banks perform their functions prudently. This is essential and mandatory to protect depositors’ interests, and the CB has to take necessary steps to eliminate any possible weaknesses in their operations affecting their financial stability.
Against this background, let us take a look at the launch initiated by the CB. The objective of this so called ‘diagnostic study’ is to assess the extent of the implications arising out of insufficient loan loss provisions and losses incurred on forex-denominated financial assets.
Going by the published financial statements of all the big banks, there appears to be no cause for alarm because quite contrary to what is happening in the business circles, banks are showing huge profits.
Most of the businesses including the export oriented are in a dire state mainly due to the forex crisis the country is facing. Some engaged in Import of electrical items, etc., have made unprecedented profits by adjusting and revaluing their previously imported stocks in hand while some others in local production have gained substantially due to import controls imposed. Those associated with businesses operated with borrowed funds have fallen into big trouble due to unprecedented interest hikes.
All these debacles are the result of economic policy stands taken by the government from time to time while the banking industry has posed a survival of the pressure externally, when the other business activities faced the down fall. This is an aberration which should have been focused on by the CB long before. Among the arbitrarily identified critical factors contributing to a projected breakdown of the banking sector quite carefully shielded by qualifying statements such as “although there aren’t any imminent concerns about their stability, Sri Lanka’s banks are currently undergoing their most painful stretch of stress …” are several eithers initiated or overlooked by the economic advisor to the government. Some of them are loan defaults due to repayment difficulties, soaring interest rates, runaway inflation, etc. The most critical factor not mentioned in the list is the sharp and precipitous fluctuations of the exchange parities for which the Central bank is directly responsible.
The global impact due to the pandemic and the resulting light of the domestic adversities cannot be disregarded but the attribution of these as entirely responsible to the current situation is a vain attempt at justification by those who have failed in their performance. History shows us many similar instances of how bloated window-dressed statistics have finally deceived all of us. Let me quote the 1990s experience of subjecting the two state banks to a ‘diagnostic audit’ directed by the World Bank. Ironically, these banks were showing a good balance sheet on the face of it when this International Intervention was made. The revelations were alarming so much so that the then Finance Minister declared that the two state banks, BOC and PB were insolvent. This led to a huge catastrophe spread over to a countrywide debate culminating in the tabling of a no-confidence motion against the FM. We still remember how the current President, then Chief Whip of the Government, Ranil Wickremesinghe ably defended the FM clearly illustrating how the banks had been cooking the accounts to show bloated profits without adequate provisions for loan loss, employee benefit schemes and writing off bad loans. Finally, the two banks were rescued by the provision of Capital to support their liquidity shortfalls to the tune of about Rs. 24 billion by the issue of long- term interest bearing bonds from the Treasury.
Going by various disclosures about the questionable lending operations of the state banks from a long-time before the onset of the pandemic we are compelled to conclude that some have shirked their responsibilities.
We keep our fingers crossed. The declaration of a state of bankruptcy and the default on loan repayments, the manipulation of exchange rates, failure to meaningfully address causes for diminishing forex inflows, interest rate manipulations leading to serious economic repercussions are the causes of the current situation while precarious and reckless lending operations resorted to mostly by hired contractors in the state banks are among the many skeletons that may come out of the cupboards during the proposed diagnostic exercise.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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