Economic Development | Speeches

Confidence in financial sector and banking industry helps Sri Lanka integrate with global economy

On the opening of HNB Towers

Colombo, Sri Lanka

January 24, 2003

Honourable Prime Minister, Board of Directors, management and Staff of Hatton National Bank, distinguished invitees, ladies and gentlemen.

It is a pleasure for me to be associated in the opening of the HNB Towers, the head office building of the Hatton National Bank.

HNB has over the years been an active financial partner of businesses and people throughout Sri Lanka and contributed in no small measure to the growth and progress we have witnessed in the economy in general and the banking industry in particular.

At a time when conventional wisdom dictates against real estate on the balance sheet of banks, HNB has taken the bold step of investing in the future and in the process added to Colombo’s skyscrapers and high rise builduings a quintessential hallmark of commercial centres worldwide.

The banking industry in Sri Lanka today face challenges typical of the industry, regionally and globally that of reducing costs , increasing revenues, minimising non-performing loans, increasing return on equity, rewarding workers and ensuring customer satisfaction.

There are also competitive challenges posed by rapid advances in information and communication technologies that both provide opportunities for enhanced services while also radically changing the way the industry works. Costs of delivering banking services to customers in the future might well reduce significantly as government policy and economic growth bridges the digital divide in our society.

The banking industry as a truly global industry needs to keep apace with developments occurring worldwide. As Sri Lanka integrates with the outside world more and more in our globalised world, we cannot afford to be isolated by outdated practices and inefficiency. While the industry has successfully transitioned from a manual system to an automated and computerised environment, we need to continue to innovate to ensure that a banking customer receives services on par with the best in the world.

More importantly, perhaps we need to ensure a healthy balance sheet and capital adequacy ratios, so that confidence in the financial system of the economy remains strong both locally and internationally.

We in Sri Lanka, both policy makers and the industry needs to honestly and squarely face up to the fact that we have interest spreads which are many times above the international norm. This economic rent covers over many inefficiencies including high cost to income ratios. It also adds significantly to the borrowing costs in the economy. It is unacceptable to lay the sole responsibility for this on the state banks or a large national branch network. In the final analysis, productivity whether driven by information systems or human resource development or both, lowers costs and delivers services more efficiently to consumers.

The recent highly publicised failure of a savings bank in Colombo has highlighted the need for efficient management and sound lending practices in our financial institutions. The social costs in terms of losses to innocent individual customers, often among those least able to afford the loss of their savings is very high, its human consequences distressing and its implications for public confidence in the system quite serious. Expecting the government, meaning the taxpayer, to bail out ailing banks is to create a moral hazard where management of private banks can adopt imprudent lending practices while expecting the government to underwrite such behaviour.

More concerning than bad lending practices have been various allegations of misconduct and fraud leveled against the management of such institutions as well as other business establishments in recent times. At a time when good corporate governance is an issue with businesses throughout the developed world, it is imperative that Sri Lanka’s private sector develops and maintains the highest ethical quotient.

In the modern economy where businesses control so much of the productive assets of a nation, companies need to be mindful not only of their own commercial interests but also those of the wider community and all its stakeholders. Such corporate responsibility needs to move beyond the traditional community and social service projects and include ethical behaviour and good corporate governance, which are essential prerequisites for enabling businesses to fulfill their responsibility to all their stakeholders, including shareholders, customers, workers, the government, the environment and the wider community.

Good governance and accountability are not challenges and indeed essential necessities exclusive to government, they are equally relevent to the corporate and business world.

Our investing public and the general public need to have confidence in the business community and the financial and producer markets. Confidence in the quality and accuracy of financial reports, published and audited accounts. It is unacceptable that companies go bankrupt after receiving clean bills of health from their auditors and industry needs to more critically examine its self-regulatory practices after such lapses.

However, I am confident that HNB with its long banking history in Sri Lanka and its tradition of considered and rational growth will face and meet these challenges in the years to come.
I wish you all the very best. Thank You.